• USD/JPY opened with a bearish gap and dropped to three-week lows.
• Concerns over the coronavirus benefitted the JPY’s safe-haven status.
• Extremely oversold conditions on hourly charts helped rebound from lows.

The USD/JPY pair built on its steady intraday recovery from near three-week lows, with bulls now looking to extend the momentum further beyond the 109.00 round-figure mark.

The pair continued with its recent pullback from multi-month tops and opened with a bearish gap on the first day of a new trading week amid concerns over the rapid spreading of the coronavirus.

The upside is likely to remain capped

With more than 2,700 people infected and 80 dead, worries that authorities might be struggling to contain the outbreak of the virus triggered a fresh bout of the global risk aversion trade on Monday.

The anti-risk flow was evident from a slump in the US Treasury bond yields and a sea of red across Asian equity markets, which eventually benefitted the Japanese yen's perceived safe-haven status.

The pair tumbled to an intraday low level of 108.73 – the lowest level since January 8 – but managed to find some support at lower levels amid extremely oversold conditions on hourly charts.

Meanwhile, investors looked past Friday's upbeat US Services PMI for January and a subdued US dollar price action did little to influence the momentum, rather seemed to be a key factor capping gains.

Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further appreciating move amid absent relevant market moving economic releases from the US.

Technical levels to watch