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USD / JPY cuts a significant part of intraday gains, rises modestly around 109.50

  • USD / JPY struggled to capitalize on its modest intraday gains to the 109.75 zone.
  • Risk appetite undermined the safe-haven Japanese yen and extended some support.
  • COVID-19 issues, falling US bond yields limited any significant gains for the pair.

The pair USD/JPY it fell about 25-30 pips from the daily swing highs and was last seen hovering around the 109.50 level during the early days of the American session.

The pair gained some positive traction during the early part of trading action on Tuesday and was supported by a combination of factors, although it struggled to capitalize on the move. A solid rally in equity markets undermined demand for the Japanese yen as a safe haven. This, coupled with the sustained buying of US dollars, extended some support to the USD / JPY pair.

That said, the recent sharp drop in US Treasury yields, coupled with the waning odds of imminent Fed action in the near future, prevented USD bulls from making aggressive bets. In fact, the yield on the benchmark 10-year US government bond fell below 1.16% for the first time in more than five months and limited the rise of the USD / JPY pair.

Meanwhile, Fed fund futures showed that the chances of a quarter-point rise in December 2022 fell to 58% on Monday from 90% on July 13, while the probability that the Fed rate hike in January 2023 fell to 70% from 100% previously. Tuesday. Additionally, the spread between 10-year and 2-year yields remained close to February lows, indicating doubts about growth prospects.

This is due to growing market fears about the possible economic consequences of the rapidly spreading Delta variant of the coronavirus, which should act as a tailwind for the JPY. The fundamental backdrop appears to be tilted in favor of bearish traders and supports prospects for an extension of this month’s retracement drop from annual highs, around the 111.65 region touched last week.

Technical levels

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