USD/JPY trades with modest losses, holds above 110.00 mark

• USD/JPY witnessed some profit-taking on Monday and snapped three days of the winning streak.
• COVID-19 jitters benefitted the safe-haven JPY and exerted pressure amid a modest USD pullback.
• Rising bets for an earlier Fed taper, rallying US bond yields should help limit any meaningful slide.

The USD/JPY pair edged lower through the early European session and dropped to fresh daily lows, around the 110.10 region in the last hour, albeit lacked follow-through.

A combination of factors failed to assist the USD/JPY pair to capitalize on the post-NFP positive move to near two-week tops, instead prompted some selling on the first day of a new week. Investors remain worried that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery. This was evident from a softer tone around the equity markets, which benefitted the safe-haven Japanese yen and exerted some pressure on the major amid a modest US dollar pullback.

The USD/JPY pair, for now, seems to have snapped three consecutive days of the losing streak and stalled last week's solid rebound from the 108.70 region, or the lowest level since late May. That said, any further downtick might still be seen as a buying opportunity and is more likely to remain limited. Friday's stronger-than-expected US monthly jobs report fueled speculations that the Fed could start tapering its asset purchases later this year, which should act as a tailwind for the USD.

Investors also seemed to have started pricing in the possibility that conditions for hiking interest rates by the Fed could be met as soon as late 2022. This was reinforced by the ongoing move up in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond jumped back above the 1.30% threshold on Monday. This should continue to underpin the greenback and assist the USD/JPY to attract some dip-buying amid absent relevant market moving economic releases from the US.

Market participants now look forward to scheduled speeches by Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin, due later during the early North American session. Apart from this, the US bond yields will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders might further take cues from the broader market risk sentiment, which will drive demand for the safe-haven JPY and further produce some short-term opportunities around the major.

Technical levels to watch