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2 Aug 2021

USD/JPY consolidates in a range above mid-109.00s

  • A combination of factors failed to provide any meaningful impetus to USD/JPY on Monday.
  • The worsening COVID-19 situation and the risk-on impulse undermined the safe-haven JPY.
  • A subdued USD price action kept a lid on any meaningful gains, at least for the time being.

The USD/JPY pair struggled to capitalize on Friday's modest bounce from near two-week lows and seesawed between tepid gains/minor losses on the first day of a new week. The pair was last seen hovering in the neutral territory, around the 109.65 region heading into the European session.

The worsening COVID-19 situation in Japan, along with a generally positive tone around the equity markets undermined the safe-haven Japanese yen. This, in turn, was seen as a key factor that extended some support to the USD/JPY pair, though a modest US dollar weakness capped the upside.

In the latest developments, Japan's COVID-19 infections surged to record highs, forcing the government to declare a state of emergency in six areas, including the capital city of Tokyo. That said, a run of stellar USD corporate earnings remained supportive of the risk-on impulse in the markets.

Despite the supporting factors, the USD/JPY pair lacked bullish conviction. Expectations that the Fed will retain its ultra-lose monetary policy stance for a longer period continued acting as a headwind for the USD and kept a lid on any meaningful gains for the USD/JPY pair, at least for now.

Market participants now look forward to the US economic docket, highlighting the release of the ISM Manufacturing PMI later during the early North American session. This, along with the broader market risk sentiment will influence the USD/JPY pair and allow traders to grab short-term opportunities.

Technical levels to watch

 

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FX option expiries for August 2 NY cut

FX option expiries for August 2 NY cut at 10:00 Eastern Time, via DTCC, can be found below. - EUR/USD: EUR amounts 1.1800 758m 1.1900 1.4b - USD/JPY:
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