USD/JPY slides further below 113.00, lowest since October 11

• A combination of factors dragged USD/JPY to the lowest level since October 11 on Tuesday.
• COVID-19 woes, the risk-off mood benefitted the safe-haven JPY and exerted heavy pressure.
• A steep decline in the US bond yields weighed on the USD and contributed to the downfall.

The USD/JPY pair maintained its heavily offered tone through the early North American session and was last seen trading around the 112.75-70 region, or the lowest level since October 11.

Following the previous day's two-way price moves, the USD/JPY pair met with fresh supply on Tuesday and prolonged its retracement slide from a near five-year peak, around mid-115.00s touched last week. The risk-off impulse in the markets provided a strong boost to the safe-haven Japanese yen. This, along with a broad-based US dollar weakness contributed to the pair's ongoing decline.

The global risk sentiment took a hit amid growing concerns about the potential economic fallout from the spread of the new coronavirus variant. The market worries were exacerbated further after The chief executive of drugmaker Moderna warned that existing vaccines will be much less effective at tackling Omicron than earlier strains of COVID-19.

Meanwhile, the developments surrounding the coronavirus saga pushed back market expectations about the likely timing when the Fed would begin tightening its monetary policy. In fact, the money markets now indicate a 25 bps rate hike in September 2022 as against July 2022 already priced in. This, along with the global flight to safety, triggered a steep decline in the US Treasury bond yields.

This, in turn, weighed heavily on the greenback and was seen as another factor that aggravated the bearish pressure surrounding the USD/JPY pair. Apart from this, the downfall could further be attributed to some technical selling below the 113.00 mark. Acceptance below the mentioned handle might have already set the stage for an extension of the corrective slide.

Market participants now look forward to the US economic docket, featuring the release of Chicago PMI and the Conference Board's Consumer Confidence Index. The focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee, which might influence the USD. This, along with the broader market risk sentiment, should provide some impetus to the USD/JPY pair.

Technical levels to watch