USD/JPY slides to fresh session lows, around 110.30-25 region

• The risk-off impulse benefitted the safe-haven JPY and prompted fresh selling around USD/JPY.
• Sliding US bond yields kept the USD bulls on the defensive and contributed to the intraday selling.
• The downside seems cushioned as the focus shifts to this week’s FOMC monetary policy meeting.

The USD/JPY pair extended its steady intraday descent through the Asian session on Monday and dropped to fresh daily lows, around the 110.30-25 region in the last hour.

The pair struggled to capitalize on last week's solid recovery move from the vicinity of the 109.00 mark and met with some fresh supply on the first day of a new trading week. A turnaround in the global risk sentiment benefitted the safe-haven Japanese yen and turned out to be a key factor that acted as a headwind for the USD/JPY pair.

Worries about the potential economic fallout from the fast-spreading Delta variant of the coronavirus dented investors' appetite for perceived riskier assets. The anti-risk flow was reinforced by retreating US Treasury bond yields, which kept the US dollar bulls on the defensive and exerted additional pressure on the USD/JPY pair.

With the latest leg down, the major has now eroded a part of Friday's strong gains to over one-week tops, though the downside is likely to remain cushioned. In the absence of any major market-moving economic releases, investors might refrain from placing any aggressive bets and prefer to wait on the sidelines ahead of the FOMC meeting, starting Tuesday.

The US central bank is more likely to signal that it is in no rush to taper its asset purchases or hike interest rates anytime soon. Nevertheless, the outcome will play a key role in influencing the USD price dynamics and help investors to determine the next leg of a directional move for the USD/JPY pair, warranting caution for bearish traders.

In the meantime, the broader market risk sentiment, developments surrounding the coronavirus saga and the US bond yields will be looked upon for some trading impetus. Hence, it will be prudent to wait for strong follow-through selling before positioning for the resumption of the recent pullback from YTD tops, around the 111.65 region touched earlier this month.

Technical levels to watch