- A combination of factors prompted some fresh selling around USD/JPY on Thursday.
- The risk-off impulse benefitted the safe-haven JPY and exerted pressure on the pair.
- Retreating US bond yields undermined the USD and contributed to the intraday slide.
The USD/JPY pair witnessed heavy selling during the early European session and dropped to two-day lows, further below the key 110.00 psychological mark in the last hour.
The pair extended the previous day's retracement slide from the 110.45 region, or near four-week tops and continued losing ground through the first half of the trading action on Thursday. The risk-off impulse in the markets boosted demand for the safe-haven Japanese yen. This, in turn, was seen as a key factor exerting downward pressure on the USD/JPY pair.
Worries that the fast-spreading Delta variant of the coronavirus could lead to a global economic slowdown dented investors' appetite for perceived riskier assets. This was evident from a fresh leg down in the equity markets and reinforced by a further decline in the US Treasury bond yields, which kept the US dollar bulls on the defensive below one-week tops.
Meanwhile, expectations that the Fed will begin rolling back its massive pandemic-era stimulus sooner rather than later might continue to act as a tailwind for the greenback. The market speculations were further fueled by several Fed officials on Monday and US data, which showed that the number of job openings reached a new record high in July.
Even from a technical perspective, the USD/JPY pair has broadly been oscillating in a range over the past three weeks or so. This warrants some caution for aggressive bearish traders and makes it prudent to wait for some strong follow-through selling before positioning for any further near-term depreciating move.
Market participants now look forward to the release of the usual Initial Weekly Jobless Claims data from the US. Apart from this, the US bond yields and scheduled speeches by FOMC members might influence the USD. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair.
