- USD/JPY continues to erase last week's losses on Monday.
- US Dollar Index slumps to lowest level since April 2018.
- JPY struggles to find demand amid risk flows.
The USD/JPY pair extended its daily advance during the early trading hours of the American session and touched a fresh daily high of 106.10. As of writing, the pair, which lost more than 100 pips on Friday after Japanese Prime Minister Shinzo Abe announced his resignation, was trading near 106.00, gaining 0.6% on a daily basis.
The risk-on market environment on Monday seems to be making it difficult for the safe-haven JPY to find demand. Heightened optimism for an effective coronavirus treatment following the US Food and Drug Administration's decision to fast-track vaccine approval if benefits outweigh the risks allows the market mood to remain upbeat at the start of the week.
Although the S&P 500 trades flat on the day a little above 3,500, the Nasdaq Composite hit a new all-time high above 12,000 on Monday.
USD selloff continues
On the other hand, the broad-based selling pressure surrounding the greenback seems to be capping the pair's upside for the time being. After losing nearly 1% last week, the US Dollar Index (DXY) slumped to its lowest level in more than two years at 91.99 on Monday. In the absence of significant fundamental drivers, the USD remains under pressure following the Fed's shift in policy strategy.
Commenting on the Fed's decision to target average inflation, "we believe in many circumstances it would be appropriate to aim for a modest overshoot to show inflation can operate on both sides of the goal," Federal Reserve's Vice Chairman Richard Clarida explained earlier in the day.
Technical levels to watch for
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