USD/JPY Forecast: Downside limited amid persistent dollar’s demand

Valeria Bednarik FXStreet

USD/JPY Current price: 104.95

Japanese data released at the beginning of the day indicated decelerating economic recovery.
US Federal Reserve´s Jerome Powell to testify again before Congress.
USD/JPY is trading around the 50% retracement of its latest daily slump.

The dollar remains king in a risk-averse scenario, firmly higher against most major rivals, and even against safe-haven gold. The USD/JPY pair, however, have found new stability around 104.50, as both currencies are considered safe havens. Stocks keep recovering, with European indexes roughly 2.0% up at the time being and pushing US futures up. Coronavirus-related concerns are taking their toll, as a second wave is hitting Europe, spurring fears of a slower-than-anticipated economic growth.

Japan returned from a long weekend publishing the preliminary September Jibun Bank Manufacturing PMI, which came in at 47.3 as expected, improving modestly from 47.2 in August. The country also published the July All Industry Activity Index, which was up 1.3%, missing expectations of 3.3%. Meanwhile, BOJ’s Kuroda offered a speech and said that the local economy is showing signs of a turnaround, adding that the central bank may extend the deadline for aid to pandemic-hit firms.

The US session will bring the Markit preliminary estimates of September PMIs. Manufacturing output is seen at 53.2 from 53.1 previously, while services activity is seen contracting to 54.7 from 55. Also, US Federal Reserve Chair Powell will testify on the economic impacts of COVID-19 before the House Select Committee. It seems unlikely he would add something new to what he said on Tuesday.

USD/JPY short-term technical outlook

The USD/JPY pair is trading just below the 50% retracement of its latest daily decline at 105.10. The 4-hour chart shows that the pair is developing above its 20 SMA, which have lost bullish strength and consolidates in the 104.50 price zone. Technical indicators, in the meantime, remain within positive levels, although losing bullish strength. The bearish potential is well limited amid the prevalent dollar’s demand, while further gains will depend on US markets’ behavior later in the day.

Support levels: 104.50 104.00 103.65

Resistance levels: 105.10 105.45 105.80

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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