USD/JPY retreats to 107.20 as dollar continues to struggle
- USD/JPY has pulled back 15 pips from overnight high.
- Dollar remains weak on stimulus expectations and progress toward coronavirus vaccine.
- Lingering SIno-US tensions pose upside risks to USD/JPY.
USD/JPY is currently trading in the red just below 107.20, having faced rejection near 107.35 during Monday's North American trading hours. The pair remains stuck in a narrow trading range of 106.60 to 107.50, which has been in place since July 10.
The pullback from the overnight high of 107.35 to 107.20 could be attributed to broad-based US dollar weakness. The dollar index, which tracks the value of the greenback against majors, fell to a 3.5-month low of 95.67 early Tuesday.
Hopes for fiscal rescue package in Europe and the US and progress toward a coronavirus vaccine is likely keeping the safe-haven US dollar under pressure. Markets have treated the greenback as a haven currency since the beginning of the coronavirus crisis.
The European Union (EU) leaders appeared closer to an agreement late Monday for a likely €1.8 trillion ($2.06 trillion) coronavirus spending package meant to reverse the coronavirus-induced slump in the European economies. The news buoyed risk sentiment and strengthened the bid tone around the single currency, pushing EUR/USD above 1.1450.
Additional pressure on the safe-haven dollar stemmed from negotiations for a second stimulus package in the US and encouraging data from Oxford University's coronavirus vaccine and CanSino Biologics' drug developed in coordination with China's military research unit.
Looking forward, the pair may suffer deeper losses if stimulus expectations keep stocks better bid. At press time, the futures tied to the S&P 500 are trading largely unchanged on the day. Meanwhile, the dollar would find haven bids if the focus shifts back to the Sino-US tensions. Investors should note that tensions between the United States and China over the South China Sea have erupted into a war of words on social media.