USD/JPY clings to gains near daily high, around 113.75 region amid risk-on

• USD/JPY regained some traction on Tuesday amid a positive turnaround in the risk sentiment.
• COVID-19 jitters held back bulls from placing aggressive bets amid subdued USD price action.

The USD/JPY pair traded with a mild positive bias heading into the European session and was last seen hovering near the daily high, around the 113.70-75 region.

Following the previous day's subdued price moves, the USD/JPY pair gained some positive traction on Tuesday and was supported by a combination of factors. A solid recovery in the global risk sentiment – as depicted by a positive turnaround in the equity markets – undermined the safe-haven Japanese yen. This, along with an uptick in the US Treasury bond yields, acted as a tailwind for the major.

That said, a combination of factors held back traders from placing aggressive bullish bets and capped gains for the USD/JPY pair. Investors remain concerned about the economic fallout from the rapid spread of the Omicron coronavirus variant. Apart from this, fading hopes of a definitive vote on US President Joe Biden's massive spending bill should keep a lid on any optimistic move in the markets.

It is worth recalling that US Senator Joe Manchin, a conservative Democrat who is key to Biden’s hopes of passing the investment bill, said on Sunday that he would not support the package. Earlier last week, Biden had admitted that he probably wouldn't be able to push through the bill as quickly as previously expected. The developments dashed hopes of a definitive vote before the end of the year.

Investors might also be reluctant amid absent relevant market=moving economic releases and thin liquidity conditions heading into the end-of-year holiday season. This, in turn, leaves the USD/JPY pair at the mercy of the broader market risk sentiment.  Hence, it will be prudent to wait for a strong follow-through buying before positioning for any further appreciating move.

Technical levels to watch