USD/JPY regains 113.00 as yields rebound amid cautious optimism

• USD/JPY prints mild gains around two-month low, picks up bids of late.
• Mixed updates for Omicron, light calendar in Asia allow traders to consolidate recent losses.
• S&P 500 Futures gain 0.40%, US 10-year Treasury yields rise 4.2 bps.
• US CPI in focus ahead of next week’s Fed meeting.

USD/JPY picks up bids to poke intraday high around 113.00, up 0.25% intraday during the initial hours of Tokyo open on Monday.

The yen pair dropped the previous day tracking the US Treasury yields. The latest rebound, however, remains elusive amid mixed concerns over the South African covid variant and the Fed rate hike chatters.

Market sentiment improves during the week-start as hopes of finding a cure for Omicron escalates. Adding to the risk-on mood could be the market’s rethink of the US inflation concerns ahead of this week’s US Consumer Price Index (CPI), as well as the next week’s Fed meeting.

After initially hitting Europe and the UK, the virus strain tightens its grip towards reaching the key global nations like the US and China. It should be noted, however, that global scientists are optimistic over the cure. Recently, US top Medical Officer Anthony Fauci backed Pfizer’s drug to be effective against Omicron while the news of chewing gum to stop the virus spread and the UK’s push for treatment also keeps traders hopeful.

On the same line were updated from Japan’s Kyodo News suggesting that Japan submits record extra budget for fiscal 2021 worth a record 36.0 trillion yen ($320 billion) to parliament for COVID-hit economy.

Alternatively, the US-China tussles and Beijing’s push for further Reserve Requirement Ratio (RRR) cut challenge the risk appetite.

It’s worth noting that Friday’s US Nonfarm Payrolls (NFP) failed to compress the US dollar gains as the drop in the US Unemployment Rate and hawkish comments from St Louis Fed President James Bullard favored the greenback bulls. That said, US NFP disappointed labor market optimists with 210K figures, versus 550K expected, the Unemployment Rate propelled Fed funds futures with a 0.4% drop to 4.2%. Further, Average Hourly Earnings matched the 4.8% YoY forecast.

Against this backdrop, S&P 500 Futures print 0.40% intraday gains and the US 10-year Treasury yields gain 3.5 basis points (bps) to 1.378% by the press time. Wall Street benchmarks closed negative while the US 10-year Treasury yields dropped around 10 basis points (bps) to 1.35%, the lowest since late September, on Friday.

Moving on, coronavirus updates and geopolitical headlines may entertain USD/JPY traders ahead of the key US inflation data on Friday.

Technical analysis

A convergence of the previous resistance line from late March and a descending trend line from October 12, around 112.45-50, becomes a tough nut to crack for USD/JPY sellers. Meanwhile, short-term buyers will wait for a clear break of the 50-DMA level of 113.43 for conviction.