USD/JPY trades with modest losses, remains capped below 110.00 mark

   •  Bulls fail to capitalize on the recent positive momentum despite a renewed USD buying.
   •  Retracing US bond yields prompt some selling, though risk-on mood helped limit losses.
   •  Traders now eye today’s second-tier US economic data for some short-term opportunities.

The USD/JPY pair met with some fresh supply on Wednesday and fell to an intraday low level of 109.63, albeit has managed to bounce off few pips from daily.

Despite a follow-through US Dollar buying interest, the pair failed to capitalize on the recent positive momentum and continued with its struggle to break past the key 110.00 psychological mark in a convincing manner.

The greenback showed little reaction to the US President Donald Trump's State of the Union address and has now reversed all of its losses that came after last week's dovish FOMC message, but did little to boost the pair.

Bearish traders seemed to take cues from a modest retracement in the US Treasury bond yields, though the prevalent risk-on mood, which tends to undermine the Japanese Yen's safe-haven demand, helped limit deeper losses. 

Moving ahead, today's US economic docket, featuring the delayed release of November Trade Balance figures and Prelim Unit Labor Costs/Nonfarm Productivity data will now be looked upon for some fresh impetus.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: “A break above 110.00 would confirm a flag breakout and open the doors to 111.66 (target as per the measured move method, i.e. pole height added to breakout price).”

“Technically speaking, the probability of the pair witnessing a bull flag breakout is high, as the path of least resistance is to the high side, according to the descending expanding channel breakout confirmed on Jan. 3,” he added further.