USD/JPY climbs back closer to multi-month tops, 107.00 mark remains in sight

The USD/JPY pair held on its intraday gains through the early European session on Wednesday and was last seen trading near daily tops, around the 106.85 region.

Following the previous day's pullback from the vicinity of the 107.00 mark, or over six-month tops, the pair caught fresh bids and was supported by a combination of factors. A fresh leg up in the equity markets undermined the safe-haven Japanese yen. Apart from this, a modest US dollar uptick assisted the USD/JPY pair to regain positive traction.

The global risk sentiment remained well supported by optimism that a massive US fiscal spending plan will energise the global economic recovery. This, along with the impressive pace of coronavirus vaccinations, continued boosting investors' confidence and remained supportive of the underlying bullish tone in the financial markets.

Meanwhile, the reflation trade forced investors to price in a possible uptick in inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. Adding to this, expectations for a relatively faster US economic recovery from the pandemic underpinned the USD and extended some additional support to the USD/JPY pair.

However, retreating US Treasury bond yields might hold bullish traders from placing fresh bets and cap gains for the USD/JPY pair amid slightly overbought conditions. Hence, it remains to be seen if bulls are able to capitalize on the move or struggle to conquer the 107.00 mark as the focus now shifts to the US macro releases for a fresh impetus.

Wednesday's US economic docket highlights the releases of the ADP report on private-sector employment and ISM Services PMI. The data, along with the US bond yields, will play a key role in influencing the USD price dynamics. Traders might further take cues from the broader market risk sentiment in order to grab some meaningful opportunities.

Technical levels to watch