USD/JPY recovers modestly after dropping to multi-week lows near 109.00

The USD/JPY pair came under heavy bearish pressure during the European trading hours and fell to its lowest level in nearly two months at 109.07 on Monday. Although the pair managed to stage a recovery in the early American session, it stays in the negative territory and was last seen trading at 109.45, down 0.6%.

At the start of the week, risk-off flows allowed the safe-haven JPY to outperform its rivals. Renewed concerns over the rising number of coronavirus cases crippling the global economic recovery seem to be weighing on market sentiment on Monday. Punctuating the dismal market mood, major equity indexes in the US are losing between 1% and 2.2%. 

Meanwhile, the benchmark 10-year US Treasury bond yield is losing more than 7%, making it difficult for USD/JPY to erase its losses.

On the other hand, the greenback also attracts investors as a safer alternative against its risk-sensitive counterparts, especially commodity-linked currencies, and limits USD/JPY's downside for the time being. Currently, the US Dollar Index is up 0.15% at 92.85.

USD/JPY outlook

TD Securities analysts think USD/JPY could extend its slide toward mid-108.00s.

"USD/JPY remains heavy after trading below near-term support around 109.72 tentatively established last week," analysts explained. "As we look lower, our initial attention is focused on the MTD lows and top of the Ichimoku cloud. Both of which cluster around the 109.55 mark. Beyond this, we think the cloud base (109.12) and the 108.50 (+/-) zone as the next set of attractors to the downside."

Additional levels to watch for