USD/JPY consolidates in a range near monthly tops, just below 110.80 area

• Lingering concerns about China Evergrande benefitted the safe-haven JPY and capped USD/JPY.
• Retreating US bond yields kept the USD bulls on the defensive and further acted as a headwind.
• Rising bets an early Fed rate hike, breakout through the 110.25-30 hurdle favours bullish traders.

The USD/JPY pair lacked any firm directional bias and seesawed between tepid gains/minor losses, above mid-110.00s through the early European session.

A combination of diverging forces failed to assist the USD/JPY pair to capitalize on last week's positive move, instead led to a subdued/range-bound price action on the first day of a new trading week. Worries about potential risks from the debt crisis at China Evergrande Group resurfaced after a deadline for paying $83.5 million in bond interest passed without any remarks from the company. This, in turn, benefitted the safe-haven Japanese yen and acted as a headwind for the major.

Bearish traders further took cues from a modest pullback in the US Treasury bond yields, which kept the US dollar bulls on the defensive and contributed to cap the USD/JPY pair. That said, the prevalent risk-on mood, along with the prospects for an early rate hike by the Fed continued lending some support to the USD and helped limit the downside for the pair. It is worth recalling that the Fed's so-called dot plot indicated policymakers' inclination to raise interest rates in 2022.

Even from a technical perspective, Friday's sustained break through the 110.25-30 supply zone and a subsequent strength beyond the previous monthly swing highs favours bullish traders. Some follow-through buying beyond the 110.80 region will reaffirm the constructive outlook and pave the way for an extension of the recent strong rebound from the 109.10 strong horizontal support. Market participants now look forward to the release of the US Durable Goods Orders for a fresh impetus.

This, along with the US bond yields and scheduled speeches by a slew of influential FOMC members, might influence the USD price dynamics. Apart from this, the broader market risk sentiment will also be looked upon for some meaningful trading opportunities around the USD/JPY pair.

Technical levels to watch