USD/JPY trades below 109.50 ahead of US PMI data

• 10-year US Treasury bond yield posts modest daily gains.
• US Dollar Index retreats to 97 area following Friday's rally.
• European stocks push higher boosted by easing Brexit concerns.

The USD/JPY pair gained around 100 pips last week but struggled to push higher on Monday as investors are still assessing the trade deal between the United States and China. As of writing, the pair was trading at 109.43, adding 0.06% on a daily basis.

US-China trade headlines to remain in spotlight

Commenting on the phase-one trade deal, “While this is good news, the unorthodox process of the announcement and the mixed signals from each side suggest that things are not smooth behind the scene,” said Danske Bank analysts. “The next thing to watch for is the finalisation of the legal text and signing in early January. Then the two sides move on to phase-two, which will prove more difficult.”

In the meantime, easing concerns over a hard Brexit following Boris Johnson's Conservatives dominant victory helped major European stocks to start the new week on firm footing and made it difficult for the safe-haven JPY to find demand. Additionally, the 10-year US Treasury bond yield is adding around 1% to reflect an upbeat mood.

In the second half of the day, the IHS Markit's preliminary Manufacturing and Services PMI readings from the US will be looked upon for fresh impetus. Ahead of these data, the US Dollar Index is testing the 97 handle, not allowing the pair to gain traction.

Technical levels to watch for