USD/JPY trades with modest losses, below mid-105.00s

• USD/JPY edged lower on Monday and snapped five days of the winning streak.
• A modest USD pullback was seen as a key factor exerting pressure on the pair.
• The risk-on mood undermined the safe-haven JPY and might help limit losses.

The USD/JPY pair refreshed daily lows, around the 105.25 region in the last hour, albeit lacked any strong follow-through and quickly recovered few pips thereafter.

The pair failed to capitalize on its early uptick to the 105.70 region and witnessed a modest pullback on the first day of a new trading week. The USD/JPY pair, for now, seems to have snapped five consecutive days of the winning streak and the downtick was exclusively sponsored by a softer tone surrounding the US dollar.

Investors remain worried that the current US economic recovery could falter amid the lack of any further fiscal stimulus measures. This, along with the political uncertainty in the run-up to the US Presidential election in November prompted some USD profit-taking, which, in turn, exerted pressure on the USD/JPY pair.

However, the prevalent upbeat market mood – as depicted by a strong rally in the US equity futures – undermined the Japanese yen's safe-haven demand and helped limit any deeper losses for the USD/JPY pair. Hence, it will be prudent to wait for some strong follow-through selling before positioning for any further downside.

In the absence of any major market-moving economic releases from the US, the broader market risk sentiment and the USD price dynamics will continue to play a key role in influencing the momentum. The key focus, however, will be on the first presidential debate scheduled for Tuesday, which might infuse some volatility in the FX market.

Technical levels to watch