USD/JPY steadily climbs back to 109.00 neighbourhood, fresh session tops

The USD/JPY pair edged higher through the first half of the trading action and was last seen hovering near daily tops, just below the 109.00 round-figure mark.

A combination of factors assisted the pair to regain positive traction on the first day of a new trading week and recover a major part of Friday's post-NFP losses to over one-week lows. The underlying bullish sentiment in the financial markets was seen as a key factor that undermined demand for the safe-haven Japanese yen. Apart from this, worries that the recent surge in COVID-19 cases could hinder Japan's fragile economic recovery further acted as a headwind for the JPY.

On the other hand, a goodish pickup in the US Treasury bond yields assisted the US dollar to stage a modest rebound from the lowest level since February 25. This was seen as another factor that assisted the USD/JPY pair to snap three consecutive days of the losing streak. The pair, for now, seems to have stalled its recent pullback from the 109.70 region, though any meaningful upside seems elusive amid expectations that the Fed will keep interest rates low for a longer period.

Friday’s disappointing US monthly jobs report reaffirmed dovish Fed expectations, which might hold bulls from placing aggressive bets and cap gains for the USD/JPY pair. The headline NFP showed that the US economy added only 266K jobs in April, far lower than consensus estimates pointing to a reading of nearly one million. Adding to this, the previous month's reading was also revised down to 770K from 916K and the unemployment rate unexpectedly edged higher to 6.1% from 6.0% in March.

Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further appreciating move. This, in turn, suggests that any subsequent positive move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly amid absent relevant market moving economic releases.

Technical levels to watch