USD/JPY flirts with multi-day lows, just above mid-110.00s ahead of US data

The USD/JPY pair extended its steady intraday descent through the early North American session and dropped to fresh multi-day lows, closer to mid-110.00s in the last hour.

The pair extended last week's retracement slide from the 111.65 region, or YTD tops and witnessed some follow-through selling for the third consecutive session on Tuesday. Concerns about the spread of the highly contagious Delta variant of the coronavirus continued weighing on investors' sentiment. This was evident from the prevalent cautious mood around the equity markets, which benefitted the safe-haven Japanese yen and acted as a headwind for the USD/JPY pair.

On the other hand, the US dollar was weighed down by diminishing odds for an earlier than anticipated policy tightening by the Fed. Friday's mixed US jobs report now seemed to have convinced investors that the US central bank will wait for a longer period before tapering its asset purchases or raising interest rates. Apart from this, a fresh leg down in the US Treasury bond yields further undermined the USD and exerted some additional pressure on the USD/JPY pair.

That said, the downside is likely to remain limited as investors might refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of Wednesday's release of FOMC meeting minutes. Given the Fed's surprise hawkish shift at the end of the June meeting, investors will look for fresh clues about the central bank's policy outlook. This will play a key role in driving the USD in the near term and provide a fresh directional impetus to the USD/JPY pair.

In the meantime, market participants will look forward to the release of the US ISM Services PMI. The data, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment might further contribute to produce some short-term trading opportunities around the USD/JPY pair.

Technical levels to watch