USD/JPY clings to gains near session tops, around 109.80 region

• USD/JPY caught some fresh bids on Monday and recovered a part of the post-NFP losses.
• The risk-on environment undermined the safe-haven JPY and extended support to the pair.
• A goodish USD rebound from one-month lows remained supportive of the modest uptick.

The USD/JPY pair held on to its modest intraday gains heading into the European session and was last seen trading near daily tops, around the 109.80 region.

A combination of supporting factors assisted the USD/JPY pair to attract some buying on the first day of a new week and recover a part of Friday's post-NFP slide to the 109.60-55 support zone. The underlying bullish sentiment in the financial markets continued weighing on the safe-haven Japanese yen. This, along with a goodish US dollar rebound from one-month lows, provided a modest lift to the USD/JPY pair.

The disappointing headline NFP print, to some extent, was offset by an upward revision of the previous month's already upbeat reading. Apart from this, a further decline in the unemployment rate and strong wage growth data kept alive hopes for an imminent Fed taper announcement. Investors expect the Fed to signal tapering in September, but now expect it to begin in December and likely end the QE by the middle of 2022.

This was evident from a sharp spike in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond jumped back above 1.32% on Friday and provided a much-needed respite for the USD bulls. This, in turn, was seen as a key factor that extended some support to the USD/JPY pair. The uptick, however, lacked any strong follow-through, warranting some caution for aggressive bullish traders.

The US markets are closed on Monday in observance of Labor Day. This further warrants some caution before confirming that the recent pullback from the 110.40 region has run its course and positioning for any meaningful intraday appreciating move.

Technical levels to watch