USD/JPY clings to modest gains around 108.85 region, lacks follow-through

The USD/JPY pair traded with a mild positive bias through the early European session, albeit lacked any strong follow-through buying. The pair was last seen hovering around the 108.85 region, up nearly 0.10% for the day.

Following the previous day's good two-way price moves, the pair managed to regain positive traction on Wednesday and was supported by a combination of factors. An uptick in the US Treasury bond yields assisted the US dollar to stage a modest bounce from the lowest level since January touched on Tuesday. This, in turn, was seen as a key factor that extended some support to the USD/JPY pair.

Bullish traders further took cues from an extended rally in the global financial markets, which tends to undermine demand for the safe-haven Japanese yen. That said, expectations that the Fed will retain its ultra-lose monetary policy stance held bulls from placing aggressive bets. This might act as a headwind for the USD/JPY pair and keep a lid on any meaningful upside, at least for the time being.

Worries about runaway inflation receded after various FOMC officials reiterated that any spike in prices is more likely to be temporary. This, in turn, forced investors to scale down their bets for an earlier than anticipated Fed lift-off. Hence, it will be prudent to wait for some strong follow-through buying beyond the 109.00 mark before traders start positioning for any further move up.

There isn't any major market-moving economic data due for release from the US on Wednesday, leaving the USD at the mercy of the US bond yields. Apart from this the broader market risk sentiment will influence the safe-haven JPY and contribute to produce some short-term trading opportunities around the USD/JPY pair.

Technical levels to watch