USD/JPY gained some positive traction on Tuesday and recovered a part of the overnight losses.
The risk-on impulse in the markets undermined the safe-haven JPY and provided a modest lift.
Rebounding US bond yields remained supportive; a modest USD weakness capped the upside.
The USD/JPY pair maintained its bid tone heading into the European session and was last seen hovering near the top end of its daily trading range, just above mid-109.00s.
The pair attracted dip-buying on Tuesday and recovered a part of the previous day’s sharp rejection slide from the key 110.00 psychological mark. A strong recovery in the global risk sentiment undermined demand for the safe-haven Japanese yen, which, in turn, was seen as a key factor that provided a modest lift to the USD/JPY pair.
The risk-on impulse in the markets triggered a fresh leg up in the US Treasury bond yields, which further contributed to the intraday positive move. However, a softer tone around the US dollar held bullish traders from placing aggressive bets and capped the upside for the USD/JPY pair, warranting caution before positioning for any further gains.
Meanwhile, expectations for an imminent Fed taper announcement might continue to act as a tailwind for the greenback. Hence, any slide back towards the 109.30 region could still be seen as a buying opportunity. This, in turn, should help limit the downside for the USD/JPY pair as the market focus remains glued to the outcome of a two-day FOMC meeting.
The Fed is scheduled to announce its decision during the US session on Wednesday and is widely anticipated to leave monetary policy settings unchanged. Hence, investors will look for clues about the likely timing of the Fed’s tapering plan, which will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair.
Technical levels to watch