USD/JPY slides back closer to 5-month lows, around mid-107.00s amid a turnaround in risk sentiment

• USD/JPY failed to capitalize on intraday recovery to levels just above mid-108.00s.
• A fresh leg down in equities, US bond yields prompted some aggressive selling.
• Fed rate cut speculations continued weighing on the USD and did little to support.

The USD/JPY pair dropped to the lower end of its daily trading range, around the 107.60 region, or near five-month lows set earlier this Monday.

The pair failed to capitalize on its attempted intraday recovery move to levels just above mid-108.00s, rather met with some fresh supply amid a sudden turnaround in the global risk sentiment, which underpinned the Japanese yen's perceived safe-haven demand.

USD/JPY weighed down coronavirus concerns

The early optimism – led by speculations of a coordinated interest rate cut by the top central banks – turned out to be short-lived amid growing market worries over the negative impact of the coronavirus outbreak on the global economy.

The same was evident from a fresh leg of a downfall across equity markets, which marked the worst rout since the financial crisis. The global flight to safety allowed the US Treasuries to extend the recent rally and dragged the yields to fresh all-time lows.

Apart from this, the prevailing US dollar selling bias – aggravated by firming market expectations that the Fed will cut rates in March to safeguard the domestic economy from the coronavirus – further collaborated to the pair's weaker tone.

It is worth recalling that the Fed Chair Jerome Powell, in a rare statement on Friday, said that the central bank will "act as appropriate" to offset the “evolving risks” posed by the coronavirus outbreak and reinforced market expectations for a rate cut.

Moving ahead, market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI, which might influence the USD price dynamics and produce some short-term trading opportunities.

Technical levels to watch