USD/JPY retraces gains above 107.00 amid a likely quiet Asian session
|- USD/JPY extends pullback from 107.40 after snapping the two-day losing streak.
- Risk reset triggers US dollar recovery, yen struggles amid mixed catalysts.
- Hopes of economic recovery, virus cure fail to supersede Sino-American drama.
- No major data/events at home push traders to search for qualitative catalysts.
USD/JPY drops to 107.25 ahead of the Tokyo open on Friday. In doing so, the yen pair consolidates Thursday’s gains amid a lack of major directives. It’s worth mentioning that the market sentiment remains clueless after witnessing a risk-off session the previous day.
Hopes of the coronavirus (COVID-19) by the year-end couldn’t keep the markets happy for long. The main reasons are mixed data from the global economies and magnifying war of words between the US and China. Also contributing to the risk reset could be the rising pandemic data from the US and worries relating to the deadly disease in Tokyo.
It’s all about the risk…
Although many economic readings and events could have snatched the driver’s seat from the risk-tone, nothing happened on Thursday amid a lack of clear direction. The gains in the US Retail Sales and Philadelphia Fed Manufacturing Survey jostled with mixed Jobless Claims while there were no major factors worth watching from Japan. Hence, traders were forced to jump back on the US-China story for entertainment that led to the risk-off session.
Having snapped Hong Kong’s special trading status, the US policymakers are in talks to levy heavy sanctions on China’s ruling party members. The move will push the dragon nation towards rouge retaliation and the fears of which weighed on the risk-tone sentiment. Also, over 13.00 US cases and the highest alert in Tokyo, not to forget worrisome situations indicating the return of lockdown in America and Australia, offered additional burden market sentiment. As a result, the previous optimism, led by the hopes of the virus vaccine, couldn’t stay on the table for long.
Against this backdrop, Wall Street benchmarks closed with losses below 1.0% whereas the US 10-year Treasury yields also shrunk to 0.618%. Further S&P 500 Futures stay sluggish around 3,198.
Looking forward, a lack of major catalysts on the economic calendar will highlight virus and US-China updates as the key drivers. Further, traders might also cheer any extra good news over the global economic recovery or from the vaccine front.
Technical analysis
While 50-day SMA, at 107.50 now, limits the pair’s immediate upside, 106.60 offers near-term key support. Hence, traders will be interested in taking positions only if this range breaks.
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