USD/JPY slumps below 106.00 on risk aversion

• USD/CAD came under renewed bearish pressure in early American session.
• 10-year US Treasury bond yield is down nearly 6% on Tuesday.
• Broad-based USD strength helps USD/JPY limits its losses.

The USD/JPY pair stayed relatively calm above 106.00 during the first half of the day on Tuesday but came under renewed bearish pressure as risk aversion intensified ahead of Wall Street's opening bell. As of writing, the pair, which touched a daily low of 105.90, was trading at 105.97, losing 0.26% on a daily basis.

JPY capitalizes on flight to safety

Safe-haven flows dominate the financial markets on Tuesday amid heightened US-China geopolitical tensions and concerns over a no-deal Brexit. Reflecting the dismal mood, the 10-year US Treasury bond yield is down 5.9% on the day at 0.679%. Moreover, major European equity indexes are losing between 0.9% and 1.9%. Finally, the S&P futures and the Nasdaq futures are down 1.5% and 3%, respectively.

Meanwhile, the US Dollar Index is rising for the sixth straight day on Tuesday and helps USD/JPY limit its losses for the time being.

The IBD/TIPP Economic Optimism Index and Consumer Credit Change will be released from the US on Tuesday. However, investors are likely to ignore these data and remain focused on risk perception. 

A heavy selloff in major equity indexes in the US could provide an additional boost to the JPY in the second half of the day but the USD's performance will be key in determining how long USD/JPY could go.

Technical levels to watch for