- USD/JPY witnessed some fresh selling on Tuesday and eroded a part of the overnight strong gains.
- Dovish Fed expectations undermined the USD and turned out to be a key factor exerting pressure.
- The prevalent risk-on environment failed to impress bullish traders or lend any support to the pair.
The USD/JPY pair added to its intraday losses and dropped to fresh daily lows, around the 104.15 region during the first half of the European trading session.
The pair witnessed a modest pullback from one-week tops, around the 104.65 region and eroded a part of the overnight strong positive move of around 100 pips, led by the upbeat release of US PMI prints for November. The downfall was exclusively sponsored by the emergence of some fresh selling around the US dollar and seemed rather unaffected by the prevalent risk-on environment, which tends to undermine the safe-haven Japanese yen.
Investors remain concerned about the economic fallout from the continuous surge in new coronavirus cases in the United States and have been pricing in the possibility of additional easing by the Fed. This, along with a softer tone surrounding the US Treasury bond yields, kept the USD bulls on the defensive. This, in turn, was seen as one of the key factors that exerted some downward pressure on the USD/JPY pair.
Meanwhile, the latest optimism over a possible early rollout of vaccine for the highly contagious coronavirus disease boosted investors' confidence. The global risk sentiment got an additional boost from news that the US President-elect Joe Biden was given the go-ahead to begin his White House transition. The upbeat market mood, however, did little to impress bulls traders or lend any support to the USD/JPY pair.
From a technical perspective, some follow-through weakness below the 104.00 mark will be seen as a fresh trigger for bearish traders and set the stage for the resumption of the prior downward trajectory. The USD/JPY pair might then slide back towards the 103.70-65 intermediate support before eventually dropping to the 103.20-15 region, or multi-month lows touched earlier this November.
Market participants now look forward to the US economic docket, featuring the releases of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index. The data might influence the USD price dynamics later during the early North American session. This, along with the broader market risk sentiment, might produce some short-term trading opportunities around the USD/JPY pair.
Technical levels to watch
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