USD/JPY surrenders early gains, back below mid-107.00s

• The upbeat market mood assisted USD/JPY to gain some traction on Tuesday.
• The uptick was further supported by the BoJ’s additional stimulus measures.
• The offered tone surrounding the USD capped any strong gains for the pair.
• Investors now eye US macro data, Powell’s testimony for a fresh impetus.

The USD/JPY pair struggled to capitalize on its early uptick to multi-day tops and has now retreated to the lower end of its daily trading range, around the 107.35-40 region.

Following the previous day's two-way/directionless price action, the pair managed to gain some positive traction on Tuesday and built on last week's recovery move from one-month lows. The uptick was supported by the upbeat market mood, which tends to undermine demand for the safe-haven Japanese yen, though a weaker tone surrounding the US dollar capped any strong gains.

The Fed on Monday announced that it would begin buying of investment-grade US corporate bonds to support markets. The move helped offset concerns about a second wave of the coronavirus infections and boosted investors' sentiment. The risk-on flow, in turn, weighed on traditional safe-haven currencies, including the Japanese yen, and provided a modest lift to the USD/JPY pair.

The JPY was further pressured by the Bank of Japan's (BoJ) decision to raise the size of the special coronavirus lending program to ¥110 trillion from ¥75 trillion. At the end of the latest monetary policy meeting this Tuesday, the BoJ decided to leave interest rates unchanged at -0.10% and retained the yield curve control program, as was widely expected.

Despite the supporting factors, the USD/JPY pair struggled to gain any meaningful traction and remained well within last week's broader trading range amid the prevalent US dollar selling bias. Even the risk-on mood-led goodish pickup in the US Treasury bond yields failed to impress the USD bulls or provide any additional boost to the major.

Moving ahead, market participants now look forward to the release of the US monthly retail sales figures for a fresh impetus. This along with the Fed Chair Jerome Powell's testimony before the Senate Banking Committee will influence the USD price dynamics and eventually produce some meaningful trading opportunities around the USD/JPY pair.

Technical levels to watch