- COVID-19 jitters failed to assist USD/JPY to capitalize on its modest intraday gains on Monday.
- A softer risk tone benefitted the safe-haven JPY and prompted fresh selling around the major.
- Hawkish Fed expectations might act as a tailwind for the USD and help limit any deeper losses.
The USD/JPY pair dropped to fresh daily lows during the early European session, with bears now waiting for a sustained break below the key 110.00 psychological mark.
The pair built on the previous session's goodish rebound from mid-109.00s, or near one-month lows and edged higher during the first half of the trading activity on the first day of a new trading week. The uptick was supported by a modest US dollar strength, though concerns about new coronavirus variants kept a lid on any further gains for the USD/JPY pair.
Investors now seem convinced that the Fed could be moving towards tightening its monetary policy stance sooner, which, in turn, acted as a tailwind for the greenback. In fact, the June FOMC meeting minutes released last Wednesday revealed that Fed officials agreed on the need to be ready to act if inflation or other risks materialize.
Hence, the market focus will remain on the latest US consumer inflation figures, due for release on Tuesday. Apart from this, Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday will be looked upon for clues about the US central bank's policy outlook. This will play a key role in influencing the USD in the near term.
Meanwhile, the supporting factor, to a larger extent, was offset by concerns about the economic fallout from the spread of the highly contagious Delta variant of the coronavirus. This was evident from a sharp fall in the US equity futures, which underpinned the safe-haven Japanese yen and contributed to the latest leg of a sudden fall in the last hour.
Moving ahead, there isn't any major market-moving economic data due for release from the US on Monday. Hence, development surrounding the coronavirus saga will continue to drive the broader market risk sentiment and influence the safe-haven JPY. This, along with the USD price dynamics, might produce some short-term trading opportunities around the USD/JPY pair.
Technical levels to watch
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