USD/JPY slipped further on Tuesday from its June 23-24 2021 highs at 111.11, drifting below the 10-day average at 110.59 as COVID Delta variant fears for global growth and inflation spurred safe-haven yen buying, though the approaching non-farm payrolls report and U.S holiday could limit the move.
The yen was reversing recent weakness brought on by Japan-U.S.
rate divergence as the BoJ sticks to its dovish stance while the Fed is expected to begin tapering asset purchases as early as Q4 2021 and rate hikes possibly in Q3 2022, according to U.S. Eurodollar futures 0#ED:.
Though USD/JPY's fall from 111 has been modest, the yen's Delta-drivenstrength contrasts with euro nL2N2OB1D0 and sterling nL2N2OB18B weakness on worries about the resilience of a European recovery predicated on reduced COVID cases after vaccine rollouts accelerated.
USD/JPY's dip below its 10-DMA by 110.59 may embolden bears to target the 21-DMA by 110.11, and trend-line support by 110.98.
However, with U.S. liquidity drying up ahead of payrolls Friday and Monday's U.S. holiday, USD/JPY is likely to remain anchored near current levels.
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