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USD/JPY rallies further beyond 107.00 mark, 1-1/2-week tops

  • USD/JPY gained some strong traction for the third consecutive session on Monday.
  • Improving risk sentiment undermined the safe-haven JPY and drove the pair higher.
  • A pickup in the US bond yields revived the USD demand and remained supportive.

The USD/JPY pair caught some aggressive bids on the first day of a new trading week and rallied to over one-week tops, further beyond the 107.00 mark.

The pair built on last week’s modest bounce from multi-week lows and gained some follow-through traction for the third consecutive session on Monday amid receding demand for the safe-haven Japanese yen.

The latest optimism over the easing of coronavirus-induced lockdowns in some parts of the world, coupled with hopes for a quicker global economic recovery led to a further improvement in the global risk sentiment.

The risk-on mood was further supported by easing tensions between China and the United States, especially after top trade representatives from both the sides reaffirmed that the Phase 1 trade deal remained on track.

This, in turn, boosted investors’ appetite for perceived riskier assets and the same was evident from a positive mood around the equity markets, which weighed on traditional safe-haven assets, like the Japanese yen.

The positive momentum was further supported by a modest pickup in the US dollar demand. As investors looked past Friday’s awful NFP report, the USD found some respite from a modest pickup in the US Treasury bond yields.

Meanwhile, speculations that the Fed might be forced to push rates below zero might cap any strong USD positive move. This makes it prudent to wait for some follow-through buying before placing fresh bullish bets.

There isn’t any major market-moving economic data due for release from the US and hence, the broader market risk sentiment/USD price dynamics might continue to play a key role in influencing the pair’s momentum on Monday.

Technical levels to watch

Any subsequent positive move is likely to confront stiff resistance near the 107.45-50 region, above which bulls are likely to aim towards reclaiming the 108.00 round-figure mark. On the flip side, immediate support is pegged near the 106.65 region, which if broken might turn the pair vulnerable to slide back towards testing sub-106.00 level.

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