USD/JPY climbs higher toward 110.50 as 10-year US T-bond yield rebounds from all time lows

• 10-year US Treasury bond yield turns flat on the day.
• US Dollar Index recovers above 99 following earlier drop.
• Coming up: New Home Sales data from US.

The USD/JPY pair staged a modest recovery during the Asian session after slumping below the 110 handle but struggled to preserve its momentum amid risk-aversion.

Technical rebound in US T-bond yields

However, with the 10-year US Treasury bond yield, which slumped to a record low of 1.308% earlier in the day, paring its losses and turning flat on the day at 1.352% in the last hour, the pair regained its traction and was last seen trading at 110,42, adding 0.22% on a daily basis.

Headlines surrounding the coronavirus outbreak continue to dominate the financial markets. The latest reports revealed that Spain, France, Kuwait and Iran all announced new infections on Wednesday and the number of confirmed cases in South Korea rose to 1,261.

These developments suggest that the US T-bond yields' recovery is a technical reaction to the sharp drop witnessed since the start of the week rather than a reflection of a risk-positive environment. Nevertheless, supported by that market action, the US Dollar Index is up 0.1% on the day at 99.10 to help the currency cling to its gains.

In fact, major European equity indexes are erasing between 0.6% and 1.6% on Wednesday to confirm the persistent flight-to-safety.

Commenting on the outbreak, Japanese Prime Minister Abe said that they were taking the "utmost measures" to stop the coronavirus spread and noted that it was critical to bring the situation under control. 

In the second half of the day, New Home Sales will be the only data featured in the US economic docket and investors are likely to remain focused on the risk perception.

Technical levels to watch for