USD/JPY flits with session lows, 110.00 mark remains in sight

• USD/JPY witnessed some selling for the second consecutive session on Tuesday.
• COVID-19 jitters benefitted the safe-haven JPY and exerted downward pressure.
• Rising US bond yields underpinned the USD, though did little to lend any support.

The USD/JPY pair maintained its offered tone through the early European session and was last seen hovering near daily lows, just above the key 110.00 psychological mark.

Investors remain worried about the potential economic fallout from the spread of the highly contagious Delta variant of the coronavirus. This, along with heavy selling in Chinese equities, weighed on investors' sentiment and benefitted the safe-haven Japanese yen. This, in turn, exerted some downward pressure on the USD/JPY pair for the second consecutive session on Tuesday.

On the other hand, the US dollar found some support from a modest uptick in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond climbed back closer to the 1.30% threshold earlier this Tuesday, albeit did little to lend any support to the USD/JPY pair. That said, the downside is likely to remain cushioned ahead of the FOMC meeting.

The Fed will begin its two-day monetary policy meeting later this Tuesday and announce the decision on Wednesday. The outcome will play a key role in influencing the near-term USD price dynamics. Apart from this, developments surrounding the coronavirus saga will drive demand for the safe-haven JPY and allow traders to grab some short-term opportunities around the USD/JPY pair.

In the meantime, traders might take cues from the US economic docket – highlighting the releases of Durable Goods Orders and the Conference Board's Consumer Confidence Index. This, along with the US bond yields, might provide some impetus later during the early North American session.

Technical levels to watch