USD/JPY flirts with session lows, just above mid-110.00s

• USD/JPY edged lower for the third consecutive session on the first day of the week.
• A subdued USD demand, sliding US bond yields exerted some downward pressure.
• The cautious mood benefitted the safe-haven JPY and contributed to the selling bias.

The USD/JPY pair traded with a mild negative bias through the early European session and was last seen hovering near the lower end of its daily range, around the 110.70-65 region.

The pair struggled to capitalize on Friday's goodish rebound, instead met with some fresh supply on the first day of a new week and turned lower for the third consecutive session. The US dollar remained on the defensive amid easing worries about runaway inflation in the US and a modest downtick in the US Treasury bond yields. Apart from this, the prevalent cautious mood around the equity markets benefitted the safe-haven Japanese yen and exerted some pressure on the USD/JPY pair.

The Fed Chair Jerome Powell's comments last week soothed market nerves over the potential for early moves by the central bank to rein in its very accommodative monetary policies. This, in turn, was seen as a key factor that acted as a headwind for the greenback. During his testimony before the House Select Subcommittee on the Coronavirus Crisis, Powell said that inflation is rising due to pent-up demand and supply bottlenecks and that the price pressures should ease on their own.  

The Fed's narrative that any rise in inflation will be transitory was reaffirmed by Friday's softer core PCE Price Index data, which showed a notable acceleration in May but fell short of market expectations. The Fed’s preferred gauge of inflation shot up to 3.4% in May, marking the largest gain since April 1992. Meanwhile, consumer spending, which accounts for more than two-thirds of the US economic activity, remained flat following an upwardly revised 0.9% rise in April.

Despite the combination of negative factors, the USD/JPY pair, so far, has managed to hold its neck comfortably above Friday's swing lows, around the 110.50-45 region. This should now act as a key pivotal point for intraday traders amid absent relevant market moving economic releases from the US. That said, the downside is more likely to remain limited as investors might refrain from placing any aggressive bets ahead of Friday's release of the closely watched US monthly jobs report (NFP).

Technical levels to watch