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USD/JPY trades with modest gains above mid-109.00s, lacks follow-through

  • A combination of factors assisted USD/JPY to gain some positive traction on Friday.
  • The worsening coronavirus situation in Japan acted as a headwind for the JPY.
  • A modest USD strength provided an additional boost, though the upside seems limited.

The USD/JPY pair traded with a mild positive bias heading into the European session and was last seen hovering near daily tops, just above mid-109.00s.

The pair edged higher on the last trading day of the week and was supported by a combination of factors, stalling this week's retracement slide from levels just above mid-110.00s. The worsening COVID-19 situation in Japan undermined the Japanese yen and assisted the USD/JPY pair to gain some positive traction.

In the latest developments, Japan reported more than 9,000 daily cases yesterday. Adding to this, the government reportedly mulls a state of emergency for Osaka prefecture and extend in Tokyo to 31 August. This, along with a modest pickup in the US dollar demand, provided an additional boost to the USD/JPY pair.

As investors looked past Thursday's dismal US macro data, fresh coronavirus jitters turned out to be a key factor that benefitted the greenback's status as the global reserve currency. That said, the Fed Chair Jerome Powell's dovish remarks on Wednesday might act as a headwind and cap the upside for the USD/JPY pair.

During the post-meeting press conference, Powell emphasised that they were some ways away from substantial progress on jobs. Powell was also cautious about tapering and said that it will take a few more meetings before the Fed starts slowing its massive monetary support. This, in turn, warrants some caution for bulls.

Hence, it will be prudent to wait for some strong follow-through buying before traders start positioning for any further appreciating move. Market participants now look forward to the release of the US Core PCE Price Index, due later during the early North American session, for some short-term opportunities.

Technical levels to watch

 

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