USD/JPY retraces opening gap, stays calm near 109.30

• The USD/JPY pair starts the week with a modest bullish gap.
• The bullish momentum fades away on weak market sentiment.
• The USD strength limits losses as the DXY advances to fresh monthly highs.

After starting the new week on a positive note and edging higher toward the 110 mark, the USD/JPY pair lost its traction to retrace its early gains and turn negative below the mid-109 area. As of writing, the pair was trading at 109.32, losing 0.05%, or 6 pips, on the day.

Ongoing political uncertainties in Italy continues to weigh on the market sentiment on Monday. In a recent report, Nordea Markets analyst Jan von Gerich has argued that with the Italian president effectively blocking the formation of a M5S/LN government, Italy was likely to hold another election in the early autumn. Major European equity markets trade in a mixed manner with the German DAX index losing 0.5% and the UK's FTSE adding 0.15%.

On the other hand, the US T-bond yields fail to provide a directional clue to the pair as American traders enjoy the long memorial day weekend. At the moment, the 10-year reference is virtually flat on the day a little above 2.93%. With no other data to be released in the remainder of the day, the pair could have a difficult time setting a short-term direction.

Technical outlook

On the upside, the initial short-term resistance for the pair aligns at 109.85 (29-DMA) ahead of the critical 110.10 (200-DMA) and 110.85 (May 23 high). On the downside, a break below 109.00/108.95 (psychological level/May 24 low), the pair could aim for 108.60 (50-DMA) and 107.75 (100-DMA).