USD/JPY bounces off lows, still in the red below 112.00 mark

• A combination of factors prompts some long-unwinding around USD/JPY on Friday.
• The risk-off mood benefitted the JPY; sliding US bond yields undermined the USD.
• The downside remains cushioned and might still be seen as a buying opportunity.

The USD/JPY pair maintained its offered tone through the mid-European session, albeit has managed to trim a part of the early losses to mid-111.00s.

Having witnessed some heavy selling over the past two trading sessions, the Japanese yen attracted some safe-haven flows on the last trading day of the week and seemed rather unaffected by a further drop in the Japanese manufacturing PMI.

Bulls opt to take some profits off the table

The latest warning by the World Health Organization – that a global outbreak of the deadly coronavirus could happen at any time – triggered a fresh wave of the risk-aversion trade and provided a goodish lift to the JPY's perceived safe-haven status.

Meanwhile, the risk-off mood-led sharp fall in the US Treasury bond yields prompted some US dollar profit-taking from multi-year tops. This eventually led to some long-unwinding trade and dragged the pair to an intraday low level of 111.49.

Against the backdrop of the recent weakness in the Japanese economic data and mounting concerns over deepening economic fallout from the coronavirus outbreak, the downside is likely to remain limited, rather attract some dip-buying interest.

Hence, it will be prudent to wait for some strong follow-through selling before confirming that the pair might have actually topped out in the near-term and positioning for an extension of the corrective slide from 10-month tops set in the previous session.

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

Technical levels to watch