USD/JPY clings to gains near 108.70 as USD stays strong on upbeat PMI data

The USD/JPY pair edged higher on Monday supported by the recovering risk sentiment and the broad-based USD strength. As of writing, the pair was trading at 108.66, adding 0.25% on a daily basis.

China's central bank has injected 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations at the start of the week to help firms that have been impacted by the coronavirus outbreak. This action helped eased concerns over a sharp economic slowdown in the world's second-largest economy ease and allowed risk-on flows to return to markets.

Major European equity indexes closed the day more than 0.5% higher and Wall Street's main indexes opened sharply higher to reflect the recovering sentiment. Moreover, the 10-year US Treasury bond yield remains on track to close the day in the positive territory after erasing more than 10% last week.

USD outperform its rivals on upbeat data

In the meantime, the upbeat data from the US helped the greenback gather strength and provided an additional boost to the pair. The ISM Manufacturing PMI in January rose to 50.9 to beat the market expectation of 49.6 and the Markit Manufacturing PMI came in at 51.9, both readings showing that the business activity in the manufacturing sector expanded in January. At the moment, the US Dollar Index is up 0.45% on the day at 97.80.

Commenting on the data, "the move to expansion from contraction is certainly welcome, but we are not completely out of the woods with the trade war, and we are only beginning to understand the potential effects of the coronavirus outbreak and what it means for supply chains,” said Wells Fargo analysts.

Technical levels to watch for