USD/JPY hangs near two-week lows, just above 109.00 mark

• USD/JPY witnessed some follow-through selling for the second straight session on Tuesday.
• The risk-on impulse, rebounding US bond yields undermined the JPY and helped limit losses.
• A sustained break below the 109.00 mark is needed to support prospects for further decline.

The USD/JPY pair now seems to have entered a bearish consolidation phase and was seen oscillating in a range near two-week lows, just above the 109.00 mark touched earlier this Tuesday.

The pair added to the previous day's losses and witnessed some follow-through selling for the second consecutive session amid the prevalent selling bias surrounding the US dollar. Firming market expectations that the Fed will retain its ultra-lose policy stance for a longer period, along with Monday's disappointing US ISM Manufacturing PMI continued weighing on the USD.

In fact, the Institute for Supply Management (ISM) reported that business activity in the US manufacturing sector slowed for the second successive month in July. This comes amid the spread of the Delta variant of the coronavirus cases in the US and overshadowed the optimism over a $1-trillion US infrastructure investment bill, which could be ready for a final vote as early as this week.

That said, a combination of factors undermined the Japanese yen and helped limit any deeper losses for the USD/JPY pair. A generally positive tone in the equity markets dented demand for traditional safe-haven currencies, including the JPY. The risk-on impulse was reinforced by a solid rebound in the US Treasury bond yields, which extended some support to the USD and the major.

Apart from this, the worsening COVID-19 situation in Japan should further hold traders from placing any aggressive bullish bets around the JPY and act as a tailwind for the USD/JPY pair. Hence, it will be prudent to wait for a sustained break below the 109.00 mark before positioning for any further depreciating move amid absent relevant market-moving economic releases from the US.

Technical levels to watch