USD/JPY eases from daily highs, trades around mid-106s ahead of FOMC

The USD/JPY pair snapped its three-day winning streak on Tuesday pressured by the falling US Treasury bond yields and the dismal performance of Wall Street's main indexes but was able to gain traction and erase its losses today. After touching a session high of 106.60, the subdued trading action in the FX market allowed the pair to go into a consolidation phase near 106.50, where it was still up 0.25% on the day.

Risk sentiment recovers on Tuesday

In a constructive tone today, China's Foreign Ministry said that it was natural for the US and China to have differences on trade but said it was key to resolve those issue through dialogue. After losing more than 2% yesterday, the 10-year US Treasury bond yield reversed its direction on these remarks and helped the positively-correlated USD/JPY pair push higher. At the moment, the 10-year US T-bond yield is sitting slightly below the daily high that it set at 1.601% and is still adding 1.62% on the day at 1.584%.

Meanwhile, the S&P 500 Futures is now up 0.7% on the day, suggesting that Wall Street is likely to open the day sharply higher boosted by the upbeat market sentiment.

Later in the day, markets will be paying close attention to the FOMC's July 30-31 meeting minutes. Although the statement is unlikely to provide any fresh insights into the possibility of a rate cut in September, investors will be scrutinising any changes in the language. At the moment, the US Dollar Index is posting small daily gains at 98.18, suggesting that investors are likely to refrain from making large bets ahead of the FOMC statement.

Technical levels to watch for