USD / JPY pulls back from week highs, still positive around 105.50 level

• USD / JPY gains traction for the second day in a row on Tuesday, although it lacks continuation.
• A positive tone in the stock markets weighs on the Japanese yen and supports the upward movement of the pair.
• Moderate USD demand prevents bulls from opening new positions and limits the pair’s rally.

The pair USD / JPY has spiked to one-week highs, around the 105.60 region during the Asian session on Tuesday, although it has lacked a solid continuation and has dropped a few pips since then. At the time of writing, the pair remains positive on the day, around the 105.50 region.

The pair has extended the modest gains of the previous day and has moved higher for the second day in a row on Tuesday. The rally marks the third day of positive movement of the previous four and is due to a positive tone around US stock market futures, which tends to weigh on the Japanese yen’s demand for safe haven.

However, moderate US dollar price action has limited any further gains for the USD / JPY pair, at least for the moment. USD bulls have refrained from opening aggressive positions before the deadline to approve a coronavirus aid package and concerns about risk sentiment due to the US electoral dispute.

It is worth reporting that the Speaker of the US House of Representatives, Nancy Pelosi, set a Tuesday deadline to reach an agreement with Republicans on the economic stimulus. Investors, however, remain unconvinced that the US Congress will pass the measures before the self-imposed deadline expires. On the political front, incumbent President Donald Trump and Democratic candidate Joe Biden will face off in a debate Thursday night.

Despite the negative factors, USD / JPY is still holding decent daily gains around 105.50. However, the bulls are likely to wait for some subsequent buying beyond the 105.60-65 region before positioning for any further upside, possibly towards a recovery from the round 106.00 level.

Market participants are now awaiting the US economic calendar, which includes the release of building permits and housing starts. The data, along with broader market risk sentiment, developments around the US fiscal stimulus and the coronavirus saga, could sway the USD / JPY pair and generate some significant trading opportunities.