USD/JPY Forecast: Dollar’s weakness favors another leg south

Valeria Bednarik FXStreet

USD/JPY Current price: 105.62

The Japanese currency appreciated despite the ruling risk appetite.
US Treasury yields and equities advanced on hopes for a US stimulus package.
USD/JPY is technically bearish and could accelerate the slump on a break below 105.40.

The USD/JPY pair retreated on Friday, to close the week with modest gains around 105.60. The Japanese currency appreciated despite the ruling risk-on mood, as investors got rid of the greenback. US Treasury yields held near multi-week highs, while US indexes posted gains amid renewed hopes for a US coronavirus aid package, which somehow limited the sump in USD/JPY.

In the data front, Japan published Labor Cash Earnings, which declined 1.3% YoY in August, beating expectations. Overall Household Spending in the same period contracted 6.9%. At the beginning of the week, the country will publish the August Producer Price Index and Machinery Orders for the same month. Finally, Japan will release the preliminary estimate of Machine Tool Orders for September.

USD/JPY short-term technical outlook

The daily chart for the USD/JPY pair shows that it holds above its 20 DMA but below the larger ones, all of them with modest bearish slopes. Technical indicators, in the meantime, turned lower, the Momentum holding within positive levels yet the RSI already below its midline, skewing the risk to the downside. In the shorter-term and according to the 4-hour chart, the pair is bearish, with technical indicators heading south within negative levels and the pair developing below a now flat 20 SMA.

Support levels: 105.40 105.00 104.65

Resistance levels: 105.80 106.25 106.60

View Live Chart for the USD/JPY

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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