The USD/JPY pair trimmed some of its tepid recovery gains from near two-week lows and retreated around 20-pips from session tops touched during the early European session.
A sharp retracement in European equity markets, pointing to diminishing investors appetite for riskier assets was seen benefitting the Japanese Yen's safe-haven appeal. Against the backdrop of easing inflationary pressure in the US, fading expectations of a Fed rate hike action in September further collaborated towards keeping a lid on the pair's up-move.
Despite the headwinds, the pair has managed to hold onto minor gains above mid-112.00 as investors seemed reluctant to initiate aggressive bets ahead of the next big event risk - BoJ monetary policy decision on Thursday.
Later during the NA session, the release of Empire State Manufacturing Index would now be looked upon for some fresh trading impetus, while broader market risk sentiment and the US Dollar price dynamics would continue to act as key determinants of the pair's movement on Monday.
Technical outlook
Omkar Godbole, Analyst and Editor at FXStreet writes: "Head and shoulders breakdown has opened doors for 111.29 (target as per measured height method). The 1-hour RSI’s recovery from the oversold territory is falling apart near 50.00 levels. Meanwhile, the 4-hour RSI is yet to hit the oversold territory, thus suggesting room for further losses in the pair. The downward sloping 1-hour 50-MA (currently at 113.00) is likely to cap gains in the pair. Failure to hold Asian session gains followed by a break below 112.32 could yield another leg lower to 111.65 levels."
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