USD/JPY consolidates in a range near mid-110.00s

• USD/JPY attracted some buying near the 110.40 region amid a modest USD strength.
• Hawkish Fed expectations acted as a tailwind for the USD and remained supportive.
• COVID-19 jitters, a softer tone around the US bond yields capped gains for the major.

The USD/JPY pair reversed an early European session dip to over one-week lows and was last seen trading with modest intraday gains, around mid-110.00s.

A combination of factors assisted the USD/JPY pair to find some support near the 110.40 region and stall its recent pullback from levels beyond the 111.00 mark, or YTD tops touched last week. Speculations that the Fed will tighten its monetary policy if price pressures continue to intensify continued acting as a tailwind for the US dollar. The market expectations were further fueled by the Richmond Federal Reserve President Thomas Barkin's comments, saying that the Fed has made substantial further progress toward its inflation goal to begin tapering asset purchases.

The already stronger USD was further underpinned by Tuesday's upbeat US Consumer Confidence Index, which soared to a fresh pandemic high in June and pointed to growing optimism above the economy. That said, a softer tone surrounding the US Treasury bond yields held the USD bulls from placing any aggressive bets. Apart from this, worries about the economic impact of the spread of the highly infectious Delta variant of the coronavirus through many Asian countries benefitted the safe-haven Japanese yen. This, in turn, kept a lid on any meaningful upside for the USD/JPY pair.

Moreover, investors also seemed reluctant and preferred to stay on the sidelines ahead of Friday's release of the US monthly jobs data – popularly known as NFP. The closely watched report could influence the Fed's near-term monetary policy outlook, which will play a key role in driving the USD and assist investors to determine the next leg of a directional move for the USD/CHF pair. In the meantime, Wednesday's US economic docket – featuring the release of the ADP report on private-sector employment, Chicago PMI and Pending Home Sales – will be looked upon for some trading opportunities later during the early North American session.

Technical levels to watch