USD/JPY struggles near session lows, around 110.00 mark

• A combination of factors prompted some selling around USD/JPY on Monday.
• COVID-19 woes benefitted the safe-haven JPY and exerted downward pressure.
• Retreating US bond yields undermined the USD and contributed to the selling bias.

The USD/JPY pair maintained its offered tone through the mid-European session, with bears now awaiting a sustained break below the key 110.00 psychological mark.

The pair failed to capitalize on last week's solid rebound from the 108.70 region, or the lowest level since late May, instead witnessed some selling on the first day of a new week. The USD/JPY pair, for now, seems to have snapped three consecutive days of the winning streak and was pressured by a combination of factors.

Worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery weighed on investors' sentiment. This was evident from a generally negative tone around the equity markets, which, in turn, benefitted the safe-haven Japanese yen and exerted some downward pressure on the USD/JPY pair.

Meanwhile, the risk-off impulse in the markets triggered a modest pullback in the US Treasury bond yields, which prompted some US dollar profit-taking. This was seen as another factor that acted as a headwind for the USD/JPY pair. However, rising bets that the Fed will reduce its pandemic-era stimulus might help limit the USD losses.

Friday's blockbuster US NFP report also forced investors to start pricing in the possibility for an interest rate hike by the Fed as soon as 2022. This, in turn, supports prospects for the emergence of some dip-buying around the greenback and warrants some caution before placing any aggressive bearish bets around the USD/JPY pair.

There isn't any major market-moving economic data due for release from the US on Monday. Hence, traders might take cues from scheduled speeches by Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin. This, along with the US bond yields and the broader risk sentiment, might provide some impetus to the USD/JPY pair.

Technical levels to watch