USD/JPY slides to fresh session lows, around 109.75-70 area amid risk-off

The USD/JPY pair extended its steady intraday descent and dropped to fresh daily lows, around the 109.75-70 region during the early European session.

The pair met with some fresh supply on the first day of a new trading week and has now eroded a major part of its gains recorded on Friday. This marked the first day of a negative move in the previous three and was sponsored by the risk-off impulse in the markets, which tends to benefit the safe-haven Japanese yen.

Investors remain worried about the fast-spreading Delta variant and a global economic slowdown. This, along with the looming catastrophe at indebted developer China Evergrande, took its toll on the risk sentiment. Politics added extra uncertainty ahead of this week's Federal elections in Canada and Germany.

The flight to safety triggered a sharp decline in the US Treasury bond yields, which was seen as another factor that contributed to the intraday decline. That said, a strong follow-through US dollar buying – amid expectations for an imminent Fed taper announcement – could help limit the downside for the USD/JPY pair.

Despite signs of easing inflationary pressures in the US, the incoming positive macro data pointed to the continuation of the economic recovery. The optimism has been fueling speculations that the Fed would begin rolling back its stimulus sooner rather than later, which, in turn, acted as a tailwind for the greenback.

Hence, the market focus remains glued to the critical FOMC monetary policy meeting, starting Tuesday. Investors will look for clues about the likely timing of tapering the bond purchases, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair.

In the meantime, the broader market risk sentiment and the US bond yields will be looked upon for some short-term trading opportunities amid absent relevant market-moving economic releases on Monday.

Technical levels to watch