USD/JPY struggles for direction, consolidates around mid-109.00s

The USD/JPY pair lacked any firm directional bias and seesawed between tepid gains/minor losses, just above mid-109.00s through the early European session.

A combination of factors failed to assist the USD/JPY pair to capitalize on the overnight bounce from the vicinity of the 109.00 mark and led to a subdued/range-bound price action on Wednesday. A softer tone around the equity markets underpinned the safe-haven Japanese yen. This, along with a modest US dollar weakness, acted as a headwind for the major.

Investors remain worried that the fast-spreading Delta variant of coronavirus could lead to a global economic slowdown. This, along with political tensions in Afghanistan, weighed on investors' sentiment and benefitted traditional safe-haven assets. That said, an extension of the stage of emergency in Tokyo and seven more prefectures capped gains for the JPY.

On the other hand, diminishing odds for an early policy tightening by the Fed kept the USD bulls on the defensive and held traders from placing fresh bullish bets around the USD/JPY pair. However, an uptick in the US Treasury bond yields continued lending some support to the greenback and helped limit any meaningful slide for the USD/JPY pair, at least for now.

Investors also seemed reluctant and preferred to wait on the sidelines ahead of the release of the FOMC meeting minutes. Market participants will look for clues about the likely timing on when the Fed will begin tapering its assets purchases. This should play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the USD/JPY Pair.

Technical levels to watch