USD/JPY INCHES BACK CLOSER TO DAILY HIGH, 114.00 BACK IN SIGHT

• USD/JPY staged a modest recovery from a near three-week low touched earlier this Monday.
• The risk-on impulse undermined the safe-haven JPY and remained supportive of the move.
• Rebounding US bond yields revived the USD demand and further provided a boost to the pair.

The USD/JPY pair reversed an intraday dip to a near three-week low and was last seen hovering near the top end of its daily trading range, around the 113.75-80 region.

Following a modest bullish gap opening, the USD/JPY pair witnessed some selling and dropped to sub-113.00 levels during the early part of the trading activity on the first day of a new week. However, a combination of factors assisted the pair to attract some buying at lower levels and recover a part of Friday’s heavy losses.

Investors considered that Friday’s reaction in the financial markets to the discovery of the omicron coronavirus variant was overdone. This, in turn, led to a positive turnaround in the global risk sentiment, which undermined the safe-haven Japanese yen and was seen as a key factor that acted as a tailwind for the USD/JPY pair.

Bulls further took cues from rebounding US Treasury bond yields, which helped revive the US dollar demand and further extended some support to the USD/JPY pair. That said, worries about the potential economic fallout from the new vaccine-resistant coronavirus variant might hold back traders from placing aggressive bullish bets.

Moreover, the latest development surrounding the coronavirus saga might have forced investors to scale back their expectations for an early policy tightening by the Fed. This might keep a lid on any runaway rally for the greenback and collaborate to cap the USD/JPY pair, further warranting some caution for bullish.

Next on tap will be the release of the US Pending Home Sales data, which might do little to provide any meaningful impetus. That said, traders might take cues from the broader market risk sentiment. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/JPY pair.