USD/JPY clings to modest daily gains, lacks follow-through beyond mid-105.00s

• USD/JPY attracted some dip-buying near the 105.00 mark and moved back closer to multi-week tops.
• Concerns about ever-increasing COVID-19 cases in the US held the USD bulls from placing fresh bets.
• A sustained move beyond a descending trend-line is needed to support prospects for additional gains.

The USD/JPY pair held on to its modest intraday gains through the early North American session, albeit struggled to extend the momentum beyond mid-105.00s.

A combination of supporting factors assisted the pair to attract some dip-buying near the key 105.00 psychological mark and inch back closer to three-week tops set at the beginning of this week. The latest optimism over a potential COVID-19 vaccine remained supportive of the upbeat market mood. The risk-on flow undermined demand for the safe-haven Japanese yen and helped the USD/JPY pair to gain some traction.

Adding to this, a goodish pickup in the US dollar demand – led by the emergence of some heavy selling in the euro and pound – provided an additional boost and remained supportive of the USD/JPY pair's uptick. However, concerns about the economic fallout from the continuous surge in new coronavirus cases in the United States held the USD bulls from placing aggressive bets and kept a lid on any runaway rally for the major.

Meanwhile, the imposition of stricter restrictions in several US states now seemed to have revived hopes for additional US fiscal stimulus measures to support the economy. This could further collaborate towards capping the upside for the greenback. This makes it prudent to wait for some strong follow-through buying before traders start positioning for any further near-term appreciating move for the USD/JPY pair.

From a technical perspective, the pair was last seen hovering near a multi-month-old descending trend-line resistance. A sustained move beyond will be seen as a fresh trigger for bullish traders and set the stage for an extension of this week's strong rebound from the vicinity of the 103.00 mark, or near eight-month lows tested on Monday.

Technical levels to watch