USD/JPY retakes 110.00 mark, fresh session tops amid stronger USD

• Sustained USD buying pushed USD/JPY higher for the second successive day on Monday.
• COVID-19 jitters might extent some support to the safe-haven JPY and cap the upside.

The USD/JPY pair refreshed daily tops heading into the European session, with bulls making a fresh attempt to build on the momentum beyond the key 110.00 psychological mark.

The pair gained traction for the second straight day and built on the previous session's rebound from the 109.65-60 support area amid a goodish pickup in the US dollar demand.  Despite the dismal US jobs report for August, investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This, in turn, continued acting as a tailwind for the greenback and was seen as a key factor that provided a modest lift to the USD/JPY pair.

The hawkish Fed expectations were reinforced by Friday's release of the US Producer Price Index, which recorded the largest gain since November 2010 and indicated that higher inflation could persist for some time. This was evident from the recent spike in the US Treasury bond yields. That said, a combination of factors held bulls from placing any aggressive bets and kept a lid on any runaway rally for the USD/JPY pair, warranting some caution before positioning for any further gains.

Investors remain worried that the fast-spreading Delta variant of the coronavirus could lead to a global economic slowdown. Apart from this, reports that US Democrats were considering proposals to raise taxes on corporations and the wealthy further contributed to the cautious mood. This, in turn, could extend some support to the safe-haven Japanese yen, which, along with a softer tone around the US Treasury bond yields, might cap any runaway rally for the USD/JPY pair, at least for now

Investors might also prefer to wait for a fresh catalyst from this week's release of the key US macro data – the latest consumer inflation figures on Tuesday and monthly Retail Sales data on Thursday. Even from a technical perspective, the USD/JPY pair has been oscillating in a range over the past four weeks or so. This further points to indecision among traders and make it prudent to wait for some follow-through buying amid relevant market-moving economic releases on Monday.

Technical levels to watch