USD/JPY recovers early lost ground, flat-lined around 106.15-20 region

The USD/JPY pair managed to rebound over 30 pips from the Asian session lows and was last seen trading in the neutral territory, around the 106.15-20 region.

The pair witnessed a modest intraday pullback from the 106.40-45 region, or fresh five-month tops amid a fresh wave of the global risk-aversion trade, which tends to underpin the safe-haven Japanese yen. However, a broad-based US dollar strength helped limit the downside, rather assisted the USD/JPY pair to attract a fresh buying near the 105.85 region.

As investors digested Fed Chair Jerome Powell's dovish remarks during the congressional testimony, the USD was back in demand amid a sudden spike in the US Treasury bond yields. The US bond market has been reacting strongly to the progress on a massive US fiscal spending plan and the impressive pace of COVID-19 vaccinations globally.

The House version of the US President Joe Biden's proposed $1.9 trillion pandemic relief package is expected to get a vote as soon as Friday or over the weekend. Adding to this, the US Food and Drug Administration indicated that it could grant emergency use approval to Johnson & Johnson's COVID-19 vaccine by the end of this week.

The developments continued fueling reflation trade and pushed the yield on the benchmark 10-year US government bond beyond 1.50%, to more than one-year highs. This was seen as a key factor that provided a strong lift to the greenback. Meanwhile, the emergence of some dip-buying favours bullish traders and supports prospects for additional gains.

Market participants now look forward to the US economic docket, featuring the releases of Core PCE Price Index, Personal Income/Spending data, Goods Trade Balance and Chicago PMI. This, along with the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment might produce some trading opportunities around the USD/JPY pair.

Technical levels to watch