USD/JPY rises to fresh 2-month highs above 112 as 10-year T-bond yield surpasses 3%

• DXY recovers to 94.50 on sharp upsurge seen in T-bond yields.
• Wall Street starts the day on a positive note despite trade concerns.
• Service sector activity in the NY area expands at a robust pace.

The USD/JPY pair gained traction in the last hour and reached its highest level since July 20 at 112.38 before retreating slightly. As of writing, the pair was trading at 112.30, adding 0.38% on the day.

A strong rise witnessed in the 10-year T-bond yield in the early NA session provided a boost to the pair on Tuesday. Despite the ongoing trade conflict between the U.S. and China, a risk-on mood weighed on the demand for safe-haven T-bonds and lifted the yield on the 10-year reference to its highest level since late May at 3.035%. At the moment, the yield is up nearly 1% on the day at 3.03%. Reflecting the improved market sentiment, major equity indexes started the day higher with the Dow Jones Industrial Average and the S&P 500 adding 0.35% and 0.4% at the moment.

Meanwhile, the only noteworthy data from the U.S. showed that the business activity in the service sector in the New York area expanded at its strongest pace in a decade with the headline general business activity index rising to 22.5 in September from 14.5 in August. The US Dollar Index, which struggled to make a meaningful recovery today, was last seen flat on the day near 94.50.

There won't be any other macroeconomic data releases in the remainder of the day and the markets' risk perception is likely to stay as the sole driver of the pair's price action.

Technical levels to consider

The pair could encounter the initial resistance at 112.60 (Jul. 20 high) ahead of 113.15 (Jul. 19 high) and 114 (psychological level). On the downside, supports are located at 112 (psychological level), 111.40 (20-DMA) and 110.80 (100-DMA).