USD/JPY clings to modest gains, just below mid-109.00s

The USD/JPY pair edged higher on the first day of a new trading week, albeit lacked any strong follow-through and remained well within the previous session's trading range.

The pair had some good two-way price moves on Friday and was influenced by the broader market risk sentiment, which turned out to be one of the key factors that influenced the Japanese yen's perceived safe-haven status. The pair quickly reversed an early dip to sub-109.00 levels and rallied back closer to multi-month tops on the back of optimism led by the outcome of UK Parliamentary elections.

Bulls still seemed cautious

The positive momentum, however, ran out of the steam near the 109.70 region following the disappointing release of US monthly retail sales data, which kept the US dollar bulls on the defensive. This coupled with uncertainty over the US President Donald Trump's decision to cancel the December 15 tariff-hike on Chinese imports further collaborated to the pair's intraday pullback of around 35-40 pips.

The pair finally ended nearly unchanged for the day but managed to regain some positive traction in reaction to the US Trade Representative Robert Lighthizer's comments on Sunday, saying that the phase one US-China trade deal is “totally done.” Under the deal, China said it would substantially increase agricultural purchases in return the US decision to not to pursue a new round of tariffs.

The latest optimism remained supportive of the prevalent risk-on mood, which was further reinforced by a modest pickup in the US Treasury bond yields and helped the pair to regain some positive traction. However, some follow-through USD weakness failed to impress bullish traders and seemed to be the only factor keeping a lid on any runaway rally for the major, at least for the time being.

Hence, it will be prudent to wait for a sustained move beyond the 109.70 region before traders start positioning for any further near-term appreciating move, possibly beyond the key 110.00 psychological mark, amid absent relevant market moving economic releases.

Technical levels to watch