USD/JPY clings to gains near session tops, 110.00 mark remains in sight

  • USD/JPY regained positive traction on Tuesday and inched back closer to the 110.00 mark.
  • The risk-on impulse and the worsening COVID-19 situation in Japan weighed on the JPY.
  • An uptick in the US bond yields remained supportive, weaker USD might cap the upside.

The USD/JPY pair traded with a positive bias heading into the European session, albeit lacked any follow-through and remained below the key 110.00 psychological mark.

A combination of factors undermined the Japanese yen and assisted the USD/JPY pair to catch some fresh bids during the first half of the trading action on Tuesday. The risk-on impulse – as depicted by a generally positive tone around the equity markets – acted as a headwind for the safe-haven currencies, including the JPY. Apart from this, the worsening COVID-19 situations turned out to be another factor that continued weighing on the domestic currency.

Bulls further took cues from a modest uptick in the US Treasury bond yields. That said, worries about the potential economic fallout from the fast-spreading Delta variant of the coronavirus extended some support to the JPY. Meanwhile, easing fears of an imminent tapering of the pandemic-era stimulus by the Fed kept the US dollar bulls on the defensive. This, in turn, kept a lid on any meaningful upside for the USD/JPY pair, at least for the time being.

Investors now seem to have pushed back their expectations over the likely timing when Fed will begin to reduce the pace of its massive asset purchases amid the continuous surge in COVID-19 cases. The speculations were further fueled by Monday’s disappointing US PMI prints for August, which pointed to a sharp slowdown in both manufacturing and services sectors.

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Hence, the key focus will remain on Fed Chair Jerome Powell’s scheduled speech at the Jackson Hole Symposium. In the meantime, Tuesday’s release of second-tier US data – New Home Sales and Richmond Manufacturing Index – might do little to provide an impetus to the USD/JPY pair. That said, the broader market risk sentiment, the US bond yields and the USD price dynamics might still produce some short-term trading opportunities.

Technical levels to watch


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