USD/JPY eases from highs, remains capped below 111.00 handle

   •  USD fails to build on a modest rebound, despite surging US bond yields.
   •  Cautious environment further underpins JPY’s safe-haven demand.
   •  Focus remains on the Senate vote to fund the government.

The USD/JPY pair struggle to move back above the 111.00 handle and quickly retreated around 20-pips from session tops during the early European session.

With investors looking past a US government shutdown, the ongoing upsurge in the US Treasury bond yields extended some support to the US Dollar and helped the pair to continue finding some support near mid-110.00s.

The pair managed to fill the weekly bearish gap opening but the uptick lacked any strong follow-through momentum and was being capped by a fresh wave of USD selling wave. 

Adding to this, a cautious opening across European bourses, which tends to support the Japanese Yen's safe-haven appeal, further collaborated towards keeping a lid, at least for the time being. 

In absence of any major market moving economic releases, the US political development, with the Senate expected to vote on advancing a measure to fund the government through Feb. 8, might continue to act as a key determinant of the pair's momentum on the first trading day of the week.

Technical levels to watch

On a sustained move beyond the 111.00 handle, the pair is likely to head towards testing 111.30 supply zone en-route the very important 200-day SMA barrier near the 111.70 region. Meanwhile, on the downside, immediate support remains near mid-110.00s, before which the pair could once again challenge the key 110.00 psychological mark.