USD/JPY clings to gains near 3-week tops, around 106.75 area

• A combination of factors assisted USD/JPY to gain traction for the fourth consecutive session.
• The USD remained supported by hopes of a US economic recovery, surging US bond yields.
• The risk-on mood undermined the safe-haven JPY and remained supportive of the positive move.

The USD/JPY pair maintained its bid tone through the early European session and was last seen trading near three-week tops, around the 106.70 region.

The pair prolonged this week's positive move and continued gaining positive traction for the fourth consecutive session on Wednesday. The momentum was sponsored by some follow-through US dollar buying interest and was further fueled by the upbeat market mood, which tends to undermine the Japanese yen's safe-haven demand.

A decline in COVID-19 hospitalizations in the US boosted investors' confidence that the pandemic was coming back under control in response to more restrictive measures and revived hopes of a US economic recovery. Adding to this, a strong upsurge in the US Treasury bond yields provided an additional boost to the greenback.

Meanwhile, the latest optimism over the development of a potential vaccine for the highly contagious coronavirus disease remained supportive of the prevalent risk-on environment. This was evident from a goodish uptick in the US Treasury bond yields, which further impressed bullish traders and lifted the USD/JPY to the highest level since July 24.

However, uncertainty over the next round of fiscal stimulus measures might hold investors from placing any aggressive USD bullish bets. This, in turn, might keep a lid on any strong gains for the USD/JPY pair, at least for the time being. Hence, any subsequent positive move is likely to confront a stiff resistance near the 107.00 mark.

Moving ahead, market participants now look forward to the US economic docket, highlighting the release of the latest consumer inflation figures for July. The data might influence the USD price dynamics and produce some meaningful trading opportunities later during the early North American session.

Technical levels to watch