- A combination of factors exerted some pressure on USD/JPY for the third straight session.
- Diminishing odds for an earlier Fed rate hike continued acting as a headwind for the USD.
- COVID-19 jitters benefitted the safe-haven JPY and contributed to the intraday selling bias.
The USD/JPY pair dropped to four-day lows, around the 110.75 region during the first half of the European session, albeit lacked any follow-through selling.
Following the previous day's directionless price moves, the USD/JPY pair met with some fresh supply on Tuesday and was pressured by a combination of factors. The US dollar extended its post-NFP retracement slide and remained depressed amid reduced odds for an earlier policy tightening by the Fed.
An unexpected rise in the US unemployment rate overshadowed a big beat from the headline NFP and suggested that the Fed will wait before tapering its asset purchases. This acted as a headwind for the USD and dragged the USD/JPY pair lower for the third consecutive session on Tuesday.
Meanwhile, concerns about the spread of the highly contagious Delta variant of the coronavirus weighed on investors' sentiment. This was evident from a cautious mood around the equity markets, which underpinned the safe-haven Japanese yen and exerted additional pressure on the USD/JPY pair.
Bearish traders further took cues from a fresh leg down in the US Treasury bond yields, which was seen as another factor that weighed on the greenback. The downside, however, remains limited as investors seemed reluctant to place aggressive bets ahead of Wednesday's release of the FOMC minutes.
Given that the Fed brought forward its timetable for the first post-pandemic interest rate hike, the minutes will now be looked upon for fresh clues about the central bank's policy outlook. This will influence the USD and provide a fresh directional impetus to the USD/JPY pair.
In the meantime, Tuesday's release of the US ISM Services PMI, along with the broader market risk sentiment, will be looked upon for some short-term trading opportunities around the USD/JPY pair.