- USD / JPY reversed the early European session drop near 108.50.
- Risk appetite undermined the Japanese yen and offered some support.
- Shrinking US bond yields, USD weakness and overbought conditions could limit gains.
The pair USD/JPY it quickly rallied around 30 pips from lows hit early in the European session and was last seen trading in neutral territory, around the 108.85 region.
The pair witnessed some intraday selling and fell around 65-70 pips from the 109.20-25 region, or the highest level since June 2020 amid widespread US dollar weakness. A sharp pullback in US Treasury yields led the USD bulls to wipe some gains off the table, which in turn put some pressure on the USD / JPY pair.
However, a combination of factors helped limit any further losses, rather it helped the USD / JPY pair to attract some buying on the dips just before 108.50. The Japanese yen, a safe haven, remains weighed down by underlying bullish sentiment in financial markets amid growing optimism about a strong global economic recovery from the pandemic.
The JPY was further undermined by disappointing internal data on Tuesday, which showed the economy expanded at a slower rate than initially reported during the fourth quarter of 2020, and household spending plummeted 6.1% in January and suggested that the economy might have hit a roadblock in the January-March quarter.
That said, the extremely overloaded conditions on the daily chart warrant caution before positioning for any further appreciation moves. There is no major market moving economic data that needs to be released in the US This could prevent traders from placing new bullish positions and lead to consolidation price action around USD / JPY.
Technical levels
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