USD/JPY remains depressed below mid-110.00s, near two-week lows

The USD/JPY pair maintained its offered tone heading into the European session and was last seen trading near two-week lows, around the 109.40-35 region.  

The pair prolonged last week's retracement slide from the 110.80 region, or over one-month tops and witnessed some follow-through selling for the fourth successive day. The risk-off impulse in the markets benefitted the safe-haven Japanese yen and continued exerting some pressure on the USD/JPY pair. Bearish traders further took cues from the ongoing decline in the US Treasury bond yields amid diminishing odds for an early Fed tapering.

Investors remain concerned about the potential economic fallout from the spread of the highly contagious Delta variant of the coronavirus. This, along with disappointing Chinese macro data, fueled worries about slowing global economic recovery and weighed on investors' sentiment. This was evident from a generally weaker tone around the equity markets, which, in turn, drove flows towards traditional safe-haven assets, including the JPY.

On the other hand, the repricing of the likely timing for policy tightening by the Fed kept the US dollar bulls on the defensive. As investors looked past blockbuster US jobs report for July, signs of moderating inflationary pressure kept a lid on the recent USD rally. Adding to this, a sharp fall in the US consumer confidence now seemed to have forced investors to scale back their bets for an early tightening of the policy by the Fed.

This was evident from an extension of the downfall in the US Treasury bond yields, which was seen as another factor that undermined the greenback and exerted pressure on the USD/JPY pair. Market participants now look forward to the US monthly Retail Sales figures and Fed Chair Jerome Powell's scheduled speech on Tuesday. This, along with the FOMC monetary policy meeting on Wednesday, will influence expectations about the next policy move by the Fed.

In the meantime, the US bond yields will play a key role in influencing the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair amid absent relevant market-moving economic data from the US.

Technical levels to watch