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The bond market is having a bit of a rethink, keeping with the turn in the mood since Friday and that is the key spot to watch in FX to start the new week.

The drag on yields sank the dollar at the end of last week but today, there is a slight sense of risk aversion amid delta variant concerns and that is seeing more of a broader risk retreat as 10-year Treasury yields sit 4 bps down at 1.255%.

US futures are also softer and that is keeping commodity currencies lower to start the day. Given prevailing risk sentiment, the dollar should be able to hold up but the retreat in bond yields has bigger implications for yen pairs in particular.

GBP/JPY looks to have failed to take out resistance around 153.34-48 again with the 3 August low at 151.17 being a key line of support to watch on the week now.

Meanwhile, CAD/JPY looks to have stalled at the 50.0 retracement level of the swing move lower from May to July at 88.30, also breaching below trendline support from the July and August lows today as sellers seize back near-term control.

It's all about the bond market and the risk mood this week, as delta variant concerns start to become more of a prominent factor in terms of influencing trading sentiment.

As such, headline risks will be something to pay attention to before the focus switches towards the Jackson Hole symposium next week.

On the balance of things, I feel that delta variant concerns are - and have been - underestimated by the market for the most part. I shared some thoughts on this last month here. There is still the likelihood (and one that most people want to believe in) that vaccinations will triumph in the end but it isn't a given at the end of the day.

The situations in China, Japan, and Australia are posing risks to the prevailing outlook and there will be questions soon on the need for booster shots in the US, Europe, and UK as we look towards the autumn/winter.

However, if vaccinations work well enough and keep progressing, those risks can be cast aside and also continue to be overlooked - as it is now for the most part.

What are your views on the market right now? Share your thoughts/ideas with the ForexLive community here.