USD / JPY recovers from an initial drop and rises back above the 105.00 level

• USD / JPY was unable to capitalize on the strong gains of the previous day and witnessed some selling on Tuesday.
• Skepticism about the efficacy of the COVID-19 vaccine benefited the safe-haven JPY and put pressure on the pair.
• The lack of a solid continuation sell warrants some caution for bears.

The pair USD/JPY it recovers from an initial drop to intraday lows near the 104.80 level. At the time of writing, the pair remains slightly lower on the day near the 105.20 region.

The pair came under renewed selling pressure on Tuesday and returned a portion of the previous day’s strong bounce of nearly 250 pips from multi-month lows. It’s worth remembering that the USD / JPY pair witnessed an aggressive short-hedging move on Monday in reaction to a promising development in COVID-19 vaccine trials.

Pfizer announced that its experimental vaccine, developed jointly with BioNTech, was more than 90% effective in preventing COVID-19. However, optimism faded rather quickly amid questions about the efficacy and duration of the immunity provided by the vaccine. This, in turn, pushed investors back towards the safe-haven Japanese yen and put some pressure on the USD / JPY pair.

The nervousness was even more evident by a further downward movement in U.S. Treasury yields, keeping the dollar bulls on the defensive and contributed to the selling tone around the USD / JPY. Meanwhile, the drop remains limited, at least for the moment, amid slightly positive tone around US stock market futures., which warrants some caution for aggressive bears.

There is no major economic data release in the United States on Tuesday. Therefore, the broader market risk sentiment, coupled with USD price dynamics, will play a key role in influencing the USD / JPY pair and generating some short-term trading opportunities.

Credits: Forex Street