USD/JPY drifts back closer to session lows, around 106.80 level

• USD/JPY failed to preserve early modest recovery gains to 107.00 mark.
• Some aggressive USD selling kept a lid on the pair’s attempted recovery.
• A strong opening in the US equity markets helped limit any deeper losses.
• Bears need to wait for a sustained breakthrough 106.65-55 support zone.

The USD/JPY pair struggled to capitalize on its intraday bounce to the 107.00 mark and has now retreated to the lower end of its daily trading range.

Following an early uptick to three-week tops, the US dollar witnessed a dramatic turnaround on the first day of the week. This comes amid growing worries about a surge in new coronavirus cases, which benefitted the safe-haven Japanese yen and kept a lid on the USD/JPY pair's early uptick.

The greenback remained depressed and failed to gain any respite following the release of weaker-than-expected Existing Home Sales data, which dropped 9.7% in May. The reading marked a modest recovery from the previous month's -17.8% but missed consensus estimates pointing to a 3% fall.

Bearish traders further took cues from a softer tone surrounding the US Treasury bond yields. However, a strong opening in the US equity markets might help limit any deeper losses for the USD/JPY pair, which, so far, has managed to hold well within a three-day-old trading range.

A sustained break below the 106.65-55 region will confirm a near-term bearish breakdown and set the stage for a further near-term depreciating move for the pair. The pair might then accelerate the fall towards re-testing early May swing lows, around the 106.00 mark.

Technical levels to watch