USD/JPY weakens farther below 107.00 mark, back closer to weekly lows

The heavily offered tone surrounding the greenback pushed the USD/JPY pair further below the 107.00 mark, back closer to the lower end of its weekly range.

As investors looked past the BoJ policy decision, the pair met with some aggressive supply during the early European session and broke down of its early consolidative range amid a broad-based US dollar weakness. The latest optimism over a possible vaccine for the highly contagious disease dented the greenback's status as the global reserve currency and turned out to be one of the key factors exerting pressure on the USD/JPY pair.

Meanwhile, worries about worsening US-China relations further benefitted the Japanese yen's relative safe-haven status against its American counterpart. It is worth recalling that the US President Donald Trump on Tuesday signed a bill sanctioning Chinese officials involved in enacting Hong Kong’s national security laws. China was quick to respond and threatened to impose retaliatory sanctions against US individuals/entities.

This comes on the back of a surge in new COVID-19 cases in the US, which pushed Californian back into lockdown and further undermined sentiment surrounding the greenback. A goodish pickup in the US Treasury bond yields failed to impress the USD bulls. Even the prevalent upbeat market mood, which tends to dent the Japanese yen's safe-haven demand, also did little to stall the USD/JPY pair's sharp intraday downfall.

Adding to this, possibilities of some short-term trading stops being triggered on a sustained break below the 107.15-10 horizontal support further seemed to have aggravated the selling pressure. Some follow-through weakness below weekly lows, around the 106.80-75 region, will now be seen as a fresh trigger for bearish traders. The USD/JPY pair might then accelerate the fall to mid-106.00s before eventually dropping to challenge the 106.00 mark.

Market participants now look forward to the US economic docket, highlighting the release of Empire State Manufacturing Index and Industrial Production. The data might influence the USD price dynamics and produce some meaningful trading opportunities later during the early North American session.

Technical levels to watch