- COVID-19 jitters benefitted the safe-haven JPY and prompted some selling around USD/JPY.
- Sliding US bond yields undermined the USD and also contributed to the intraday selling bias.
- The downside remains cushioned as the focus remains on this week’s FOMC policy meeting.
The USD/JPY pair maintained its offered tone through the early European session, albeit has managed to trim a part of the intraday losses and was last seen trading around the 110.30-25 region.
The pair witnessed some selling on the first day of a new trading week and eroded a major part of Friday's gains to over one-week tops. Investors now seemed worried that the spread of the highly contagious Delta variant of the coronavirus could derail the global economic recovery. This, in turn, took its toll on the global risk sentiment, which benefitted the safe-haven Japanese yen and exerted pressure on the USD/JPY pair.
Bearish traders further took cues from a sharp intraday decline in the US Treasury bond yields, triggered by the global flight to safety. In fact, the yield on the benchmark 10-year US government bond reversed last week's positive move to the 1.30% threshold. This was seen as a key factor that kept the US dollar bulls on the defensive and further contributed to the USD/JPY pair's intraday fall from levels just above mid-110.00s.
That said, a goodish rebound in the equity markets and the US bond yields acted as a headwind for traditional safe-haven assets and helped limit any deeper losses for the USD/JPY pair. Investors also seemed reluctant to place aggressive bets amid absent relevant market-moving economic releases from the US. This warrants some caution before positioning for any further decline ahead of this week's key event risk – the FOMC meeting starting Tuesday.
Technical levels to watch
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