USD/JPY bounces off multi-month lows, back above 106.00 mark ahead of US data
- US-China trade war fears continued to benefit the JPY’s safe-haven status.
- Tumbling US bond yields weighed on the USD and added to the selling bias.
- Extremely oversold conditions helped limit further losses ahead of US ISM PMI.
The USD/JPY pair maintained its heavily offered tone through the mid-European session, albeit has managed to rebound around 30-pips from fresh multi-month lows set earlier this Monday.
The pair remained under some heavy selling pressure for the third consecutive session on Monday and extended last week's sharp retracement slide from levels beyond the 109.00 handle - two-month tops set last Thursday in the aftermath of a hawkish rate cut by the Fed.
The pair's slump of around 350-pips over the past three trading sessions came after the US President Donald Trump broke a brief one-month-long trade truce and unexpectedly announced to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1.
This was followed by China's warning to retaliate against the new US tariffs, which further fueled market concerns of a full-blown trade war between the world's two largest economies and continued boosting the Japanese Yen's perceived safe-haven status.
The global flight to safety was further reinforced by the ongoing slump in the US Treasury bond yields, which weighed heavily on the US Dollar and further collaborated to the pair's sharp slide back below the 106.00 handle - the lowest level since the early-January flash crash lows.
However, extremely oversold conditions held investors from placing any further bearish positions and seemed to be the only factor that extended some support and helped the pair to stabilize above the 106.00 handle ahead of the US ISM non-manufacturing PMI.
It will now be interesting to see if the pair is able to capitalize on the attempted rebound or meets with some fresh supply at higher levels amid renewed speculations about an aggressive Fed monetary policy easing cycle on the back of a fresh escalation in US-China trade tensions.
Technical levels to watch