USD/JPY trades in tight range near 106 handle despite US T-bond yield recovery

• 10-year US Treasury bond yield adds more than 2% on Thursday.
• Market sentiment improves slightly on upbeat trade data from China.
• Coming up: Weekly Initial Jobless Claims data from US.

After dropping to its lowest level since early January at 105.50 on Wednesday, the USD/JPY pair staged a technical recovery and closed the day with modest losses near the 106 handle. With the market volatility softening and the trade action turning subdued on Thursday, the pair is moving sideways in a tight range and was last down 0.15% on the day at 106.09.

Risk sentiment continues to impact the pair's action

Earlier today, the monthly data from China revealed that the country's trade surplus narrowed to $45.06 billion in July but came in better than the market expectation of $40 billion to ease concerns over the negative impact of the US-China trade conflict on the economic performance. Despite a sharp decline in exports to the US, China posted an annual increase of 3.3% in exports amid strong demand from Asian neighbours and helped the risk appetite return to markets.

Following a slump below the 1.6% mark for the first time since October 2016 yesterday, the 10-year US Treasury bond yield staged a decisive recovery and was last adding more than 2% on the day, allowing the pair to limit its losses.

However, the Greenback continues to have a difficult time finding demand as markets are pricing a higher probability of multiple Fed rate cuts in the remainder of the year and preventing the pair from gaining traction.

In the second half of the day, the weekly Initial Jobless Claims report from the US will be looked upon for fresh impetus. More importantly, participants will be paying close attention to Wall Street's and the bond markets' performance.

Technical levels to watch for