USD/JPY analysis: decline could briefly pierce the 110.00 level

USD/JPY Current price: 110.40

  • Japan to release December Machinery Orders, seen bouncing nicely after November's soft result.
  • US Treasury yields ease on renewed trade war optimism.

The USD/JPY pair eased from a fresh 2019 high of 111.12, closing the week with gains and Friday flat in the 110.40 region. The pair was trapped between opposing forces, as the greenback eased alongside government bond yields,  while US major indexes soared to their highest for this year, ending the week with solid gains. Yields eased after US President Trump said that they are closer than ever to reach a trade deal with China, adding that he is willing to extend the truce period beyond March 1st. The yield on the benchmark 10-year Treasury note closed the week at 2.66%, after flirting with 2.72% mid-week. Preventing the Japanese currency from appreciating, data released these last few days pointed for a continued slowdown in the local economy. Japan will release Machinery Orders for December at the beginning of the week, foreseen up by 3.5% MoM from a previous flat reading.

The daily chart for the pair shows that the rally stalled right below the 100 and 200 DMA, with the largest one around 111.30, and the shorter at 111.70, providing dynamic resistances in the case the pair recovers the 111.00 mark. Technical indicators in the mentioned chart have pulled back modestly from overbought readings before paring their declines, now flat well into positive ground, a sign that selling interest around the pair is limited. Shorter term, and according to the 4 hours chart, however, the risk skews to the downside, as technical indicators head lower in negative ground, suggesting that the slide could continue as corrective mode toward a mild bullish 100 SMA, acting as support at around 109.80. A downward acceleration below this region could result in a steeper decline that could put at risk the positive momentum that started with the month.

Support levels: 110.10 109.75 109.40

Resistance levels: 110.65 111.00 111.30

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