USD/JPY consolidates daily gains, remains capped below 111.00 handle

   •  Reviving USD demand/positive US bond yields lending support.
   •  Risk of a possible US government shutdown seemed to cap gains.
   •  Cautious environment offset upbeat US manufacturing data. 

The USD/JPY pair held onto is recovery gains through the early NA session, albeit struggled to gain any follow through traction and remained capped below the 111.00 handle. 

A goodish pickup in the US Treasury bond yields supported a modest US Dollar rebound from 3-year lows and helped the pair to defend the key 110.00 psychological mark, at least for the time being.

The up-move, however, seemed lacking conviction as investors refrained from placing any fresh USD bullish bets amid growing risk of a potential US government shutdown later this week. 

Moreover, the prevalent cautious sentiment around equity market was seen lending support to the Japanese Yen's safe-haven appeal and further collaborated towards keeping a lid on any meaningful recovery for the major. 

Hence, it would prudent to wait for a strong follow-through momentum beyond the 111.00 handle before concluding that the pair might have bottomed out in the near-term.

Meanwhile, today's better-than-expected industrial production and capacity utilization data from the US did little to influence the pair's movement and went largely unnoticed. 

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet writes: “Technically, the upward potential remains well limited, as the pair can't regain the 111.00 level, while in the 4 hours chart, technical indicators have corrected oversold conditions, losing upward strength once they reached their mid-lines, now flat around them. In the same chart, the 100 SMA maintains its bearish strength below the 200 SMA, both far above the current level. The pair would need to recover at least above 111.60 to shrug off the negative stance, something quite unlikely for today, while a major support comes at 109.85, with a break below it opening doors for a steeper, long-lasting decline.”