- USD / JPY remained under some selling pressure for the third consecutive session on Tuesday.
- The declining odds of a previous policy tightening by the Fed continued to weigh on the USD.
- A cautious mood benefited the safe-haven JPY and further contributed to intraday selling.
The pair USD/JPY it extended its steady intraday decline during the early days of the American session and fell to fresh multi-day lows near 110.50 in the last hour.
The pair extended last week’s retracement slide from the 111.65 region, or yearly highs, and witnessed some follow-up selling for the third consecutive session on Tuesday. Concerns about the spread of the highly contagious Delta variant of the coronavirus continued to weigh on investor sentiment. This was evident by the cautious weather in the equity markets, which benefited the Japanese yen as a safe haven and acted as a headwind for the USD / JPY pair.
On the other hand, the US dollar was affected by the decrease in the chances of a policy tightening by the Fed earlier than expected. The US mixed jobs report on Friday appeared to have convinced investors that the US central bank will wait a longer period before reducing its asset purchases or raising interest rates. Apart from this, a further bearish leg in US Treasury yields further weakened the USD and put some additional pressure on the USD / JPY pair.
That said, the slide is likely to remain limited as investors could refrain from aggressive bets, rather than preferring to wait on the sidelines before Wednesday’s release of the FOMC meeting minutes. Given the surprise aggressive shift by the Fed at the end of the June meeting, investors will be looking for new clues on the central bank’s policy outlook. This will play a key role in driving the USD in the short term and will provide new directional momentum to the USD / JPY pair.
Meanwhile, market participants will await the release of the US ISM Services PMI. The data, along with US bond yields, will influence USD price dynamics. Apart from this, the broader market risk sentiment could further contribute to producing some short-term trading opportunities around the USD / JPY pair.