USD/JPY on the defensive around mid-107.00s, below 50-DMA

• Worsening US-China relations benefitted the safe-haven JPY and exerted some pressure on USD/JPY.
• A pickup in the USD demand, the positive mood around the equity markets helped limit deeper losses.
• Traders await a sustained breakthrough one-week-old trading range before placing directional bets.

The USD/JPY pair extended its sideways consolidative price action on Wednesday and remained confined in a narrow trading band around mid-107.00s.

The pair continued with its struggle to make it through the key 50-day SMA pivotal resistance and witnessed a modest pullback on Tuesday amid worsening US-China relations. Diplomatic tensions between the world's two largest economies escalated further after the US President Donald Trump promised a strong reaction to China's planned national security law for Hong Kong.

China was quick to retaliate and threatened countermeasures against any the US. This, in turn, provided a modest lift to the Japanese yen's perceived safe-haven status and kept the USD/JPY pair on the defensive for the second straight session on Wednesday. However, a goodish pickup in the US dollar demand helped limit any deeper losses, at least for the time being.

The greenback was back in demand on Wednesday, which coupled with some follow-through gains in the equity markets extended some support and held the pair well within a one-week-old trading range. The risk sentiment remained well supported by the latest optimism over a potential COVID-19 vaccine and hopes of a sharp V-shaped recover for the global economy. Hence, it will be prudent to wait for a sustained breakthrough in either direction before positioning for the pair's near-term trajectory amid absent relevant market moving economic releases.

Technical levels to watch

USD/JPY