USD/JPY off lows, down little around 109.80-85 ahead of US GDP

• USD/JPY edged lower on Wednesday, though a combination of factors helped limit losses.
• COVID-19 woes, a positive tone around the equity markets weighed on the safe-haven JPY.
• Rebounding US bond yields further extended some support to the USD ahead of the US GDP.

The USD/JPY pair remained on the defensive through the mid-European session, albeit has managed to rebound few pips from daily lows and was last seen trading around the 109.80-85 region.

The pair extended the previous day's post-FOMC retracement slide from the 110.25-30 area and witnessed some follow-through selling on Thursday. This marked the third day of a negative move in the previous four and was sponsored by the heavily offered tone surrounding the US dollar.

The US central bank sounded optimistic about the economic recovery in its monetary policy statement. However, the Fed Chair Jerome Powell took a dovish turn at the post-meeting press conference and emphasised that they were some ways away from substantial progress on jobs.

Powell was also cautious about tapering and said that policymakers discussed some details but it will take a few more meetings to get into it. The difference in tone between the policy statement and Powell's remarks triggered a broad-based USD selloff and weighed on the USD/JPY pair.

That said, a combination of factors held traders from placing any aggressive bearish bets around the USD/JPY and helped limit any deeper losses, at least for the time being. A strong rebound in the US equity futures undermined the safe-haven Japanese yen and extended some support.

The JPY was further pressured by the worsening coronavirus situation in Japan. In the latest developments, Japan reported more than 9,000 daily cases yesterday. Adding to this, the government reportedly mulls a state of emergency for Osaka prefecture and extend in Tokyo to 31 August.

Traders further took cues from a goodish rebound in the US Treasury bond yields, which, for now, helped the USD Index to find some support near the 92.00 mark. Investors now look forward to the Advance second-quarter US GDP report for some meaningful trading opportunities.

Technical levels to watch