- USD/JPY attracted some dip-buying on Tuesday and stalled its recent corrective slide.
- The safe-haven JPY was weighed down by the prevalent risk-on mood, COVID-19 jitters.
- An uptick in the US bond yields remained supportive’ sustained USD selling capped gains.
The USD/JPY pair managed to recover over 35 pips from multi-day lows and climbed to fresh daily tops, around the 109.65-70 region during the mid-European session.
The pair extended last week's retracement slide from the highest level since April 6 and witnessed some selling through the first half of the trading action on Tuesday. However, a combination of factors helped limit any further losses, rather assisted the USD/JPY pair to find some support near the 109.30-35 region.
The prevalent risk-on environment, as depicted by a relentless rally in the global equity markets, undermined the safe-haven Japanese yen. Apart from this, concerns that an extended state of emergency in Tokyo and eight other prefectures could hinder Japan's fragile economic recovery further acted as a headwind for the JPY.
Bulls further took cues from a goodish pickup in the US Treasury bond yields, though sustained US dollar selling kept a lid on any strong gains for the USD/JPY pair. The USD languished near multi-month lows amid growing market conviction that the Fed will retain its ultra-lose monetary policy for a longer period.
Hence, it will be prudent to wait for some strong follow-through buying before positioning for any meaningful upside. Market participants now look forward to the release of the US ISM Manufacturing PMI. This, along with speeches by Fed Vice Chair Randal Quarles and Governor Lael Brainard, would influence the USD price dynamics.
Apart from this, the broader market risk sentiment will play a key role in driving the USD/JPY pair and allow traders to grab some short-term opportunities.
Technical levels to watch
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