- A combination of factors helps the USD / JPY gain some positive traction on Tuesday.
- The recovery in equity markets weighs on the safe-haven JPY and supports the pair’s upward move.
- The rebound in US bond yields acts as a tailwind for the USD and provides a modest rise to the pair.
The pair USD/JPY moves with a slight positive bias during the European session on Tuesday, remaining close to its daily highs around the 109.60-65 level.
The pair has advanced on Tuesday and now looking to take advantage of the previous day’s bounce from near the 109.00 level, close to the two-month lows hit the day before. The USD / JPY pair, for now, appears to have halted its recent sharp pullback from the yearly highs around the 111.65 region and has been supported by a combination of factors.
A good Rally in US equity futures has turned out to be a key factor weighing on demand for the Japanese yen safe haven and has offered some support to the USD / JPY pair. The bulls have taken even more indications of a modest rebound in US Treasury yields, which have acted as a tailwind for the US dollar and have supported the rally in the pair.
That said, any significant positive move still seems elusive amidst growing market fears that the Delta variant of the coronavirus rapidly spreading would damage the global economic recovery. Besides this, decreased odds of impending Fed action in the near future it could act as a headwind for the USD and help limit gains for the USD / JPY pair.
In fact, Fed fund futures showed that the chances of a quarter point rise in December 2022 fell to 58% Monday from 90% on July 13, while the probability of the Fed raising rates in January 2023 fell to 70% from 100% last Tuesday. In addition to this, the spread between 10-year and 2-year yields remained close to February lows, signaling doubts about growth prospects.
There is no major US economic data release on Tuesday, leaving the USD / JPY at the mercy of broader market risk sentiment. This makes it prudent to wait for a strong continuation buy before confirming that the USD / JPY has bottomed out in the short term and positioning for any further bullish movements.