USD/JPY clings to modest gains, lacks follow-through beyond mid-103.00s

• USD/JPY regained some positive traction on Tuesday amid a pickup in the USD demand.
• The discovery of a new coronavirus strain benefitted the USD’s reserve currency status.
• Sliding US bond yields, additional US fiscal stimulus capped any further gains for the pair.

The USD/JPY pair held on to its modest intraday gains, albeit lacked any follow-through buying and remained confined in a range below mid-103.00s.

Following the previous day's sharp pullback of over 60 pips from multi-day tops, the pair managed to regain positive traction on Tuesday and was supported by resurgent US dollar demand. Investors turned cautious amid fears that the new strain of the highly contagious coronavirus disease could lead to slower global economic recovery. This, in turn, was seen as one of the key factors that continued benefitting the greenback's status as the global reserve currency.

Meanwhile, the US House of Representatives passed a long-awaited $892 billion coronavirus aid package on Monday, alongside a $1.4 trillion measure to keep the government funded for another year. This, along with a weaker tone surrounding the US Treasury bond yields, kept a lid on any runaway rally for the greenback. The USD/JPY pair was seen struggling to gain any meaningful traction beyond mid-103.00s and remained well within the previous day's broader trading range.

From a technical perspective, the USD/JPY pair's inability to capitalize on the positive move and emergence of fresh selling at higher levels suggests that the recent bearish trend might still be far from being over. This makes it prudent to wait for some strong follow-through buying before confirming that the pair has formed a strong base near the 103.00 mark.

Market participants now look forward to the US economic docket – featuring the releases of the final Q3 GDP report, Richmond Manufacturing Index, Conference Board's Consumer Confidence Index and Existing Home Sales. The data will influence the USD price dynamics and provide some trading impetus. Apart from this, fresh developments around the coronavirus saga and the broader market risk sentiment might also assist traders to grab some short-term opportunities.

Technical levels to watch