USD/JPY stands tall near multi-year top, just above 115.00 mark

• USD/JPY climbed to a fresh multi-year high during the early part of the trading action on Tuesday.
• Hawkish Fed expectations, rallying US bond yields underpinned the USD and remained supportive.
• COVID-19 jitters benefitted the safe-haven JPY and kept a lid on any further gains for the major.

The USD/JPY pair maintained its bid tone heading into the European session and was last seen trading just above the key 115.00 psychological mark, or a multi-year peak.

The pair built on the previous day's strong positive move and gained some follow-through traction for the second successive day on Tuesday. The momentum pushed the USD/JPY pair to the highest level since March 2017 and was sponsored by the prevalent bullish sentiment surrounding the US dollar.

US President Joe Biden formally nominated Jerome Powell to serve as the chairman of the Federal Reserve for a second term. The announcement cemented speculations for an early policy tightening by the Fed, which, in turn, was seen as a key factor that continued underpinning the greenback.

Meanwhile, growing market acceptance for an eventual Fed rate hike move in 2020 triggered a fresh leg up in the US Treasury bond yields. This resulted in the widening of the US-Japanese government bond yield differential and further drove flows away from the Japanese yen towards the buck.

That said, the cautious market mood – amid concerns over the rising number of COVID-19 cases in Europe – acted as a tailwind for the safe-haven JPY and held back bulls from placing fresh bets. This seemed to be the only factor that kept a lid on any further gains for the USD/JPY pair.

Investors also seemed reluctant ahead of Wednesday's key releases from the US – the Prelim (second estimate) Q3 GDP, Durable Goods Orders, Core PCE Price Index and the FOMC meeting minutes. This further warrants some caution before positioning for any further appreciating move.

Market participants now look forward to the US economic docket, featuring the release of the flash PMI prints for November, which, along with the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment could provide some trading impetus to the UYSD/JPY pair.

Technical levels to watch