USD/JPY Forecast: Dollar’s weakness will likely trigger another leg south

Valeria Bednarik FXStreet

USD/JPY Current price: 105.86

Japanese Retail Trade contracted in July alongside Industrial Production.
US Treasury yields failed to retain early gains, ended the day with modest losses.
USD/JPY bounced from near 105.00 but is still at risk of falling.

The American dollar was able to advance only against its Japanese rival, with the USD/JPY pair peaking for the day at 106.09, to later stabilize in the 105.80 price zone. The pair found support at the beginning of the day on better-than-anticipated Chinese data, which boosted sentiment in detriment of the Japanese currency. Also, Japan macroeconomic data came in worse than anticipated, weighing on the local currency. According to the official releases, Retail Trade contracted 2.8% YoY in July, while Industrial Production in the same month, was down by 16.1% YoY. Consumer Confidence in the country printed at 29.3 in August, down from 29.5 in the previous month.

The intraday spike could be attributed to US Treasury yields, which were up ahead of Wall Street’s close, but retreated ahead of the close. The yield on the benchmark 10-year Treasury note hit a daily high of 0.75% to finally settle at 0.69%. Japan will publish this Tuesday the July Unemployment rate, foreseen at 3% from 2.8% in the previous month, and the final August Jibun Bank Manufacturing PMI seen unchanged from the preliminary estimate at 46.6.

USD/JPY short-term technical outlook

The USD/JPY pair maintains its bearish tone despite its latest bounce, incapable of retaining gains beyond the 106.00 level. The 4-hour chart shows that the pair retreated from around its moving averages, with the 20 SMA still heading south below the larger ones. Technical indicators, in the meantime, stalled around their midlines, now stable just below them. Bears will likely return on a break below 105.50, the immediate support.

Support levels: 105.50 105.10 104.80

Resistance levels: 106.00 106.35 106.70

View Live Chart for the USD/JPY

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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