USD / JPY falls to fresh daily lows around 109.75-70 amid risk aversion

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  • USD / JPY receives some selling on Monday and breaks a two-day winning streak.
  • Risk aversion benefits the safe haven JPY and puts some pressure on the pair.
  • The Fed’s optimistic expectations act as a tailwind for the USD and could help limit the pair’s slide.

The pair USD/JPY has extended its constant intraday decline and has fallen to new daily lows, around the region of 109.75-70, at the start of the European session on Monday.

The pair has encountered new sales on the first day of a new week and has now returned a significant portion of the gains recorded on Friday. This has marked the first day of negative movement in the previous three and is due to risk aversion in the markets, which tends to benefit the safe-haven Japanese yen.

Investors follow concerned about the rapid spread of the Delta variant and a global economic slowdown. This, along with the looming catastrophe at the Chinese company Evergrande highly indebted, has affected risk sentiment. In addition, the policy also adds additional uncertainty before the federal elections this week in Canada and Germany.

The flight to the safe haven has triggered a sharp drop in US Treasury yields, which has been seen as another factor contributing to the intraday decline. That said, a strong continuation buy around the US dollar, amid expectations of an imminent Fed announcement, could help limit the USD / JPY decline.

Despite signs of easing of inflationary pressures in the United States, incoming positive macroeconomic data points to continued economic recovery. Optimism has been fueling speculation that the Fed would start reversing its stimulus sooner rather than later, which, in turn, has acted as a tailwind for the USD.

Therefore, the market’s focus remains on the FOMC’s monetary policy meeting, which begins Tuesday. Investors will be looking for clues as to the likely timing of the reduction in bond purchases, which will play a key role in influencing the short-term price dynamics of the USD and providing further directional momentum to the USD / JPY pair.

Meanwhile, broader market risk sentiment and US bond yields will be considered for some short-term trading opportunities amid the absence of major economic releases on Monday.

USD / JPY technical levels


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