USD/JPY Forecast: Following the lead of US Treasury yields

USD/JPY Current price: 105.38

• US Treasury yields got boosted by a sharp decline in the US unemployment rate.
• Japanese Leading Economic Index contracted in December to 94.9 from 96.1.
• USD/JPY could extend its corrective decline in the near-term at the weekly opening.

The USD/JPY pair posted substantial gains for a second consecutive week, hitting on Friday a fresh 2020 high of 105.76. The pair retreated on Friday and settled at 105.38, as investors chose to take some profits out of the table ahead of the weekly close. The early peak came after US Treasury yields soar to fresh highs, with the yield on the benchmark 10-year note reaching 1.188% following the release of mixed US employment data, which showed a sharp decline in the unemployment rate

Japan published the preliminary estimate of the December Leading Economic Index, which contracted to 94.9 from 96.1 in the previous month. The Coincident Index in the same month came in at 87.8, below the previous but better than the 86 expected. Early on Monday, the country will publish the December Trade Balance and the January Eco Watchers Survey, with the Outlook expected to have bounced from 37.1 to 44.2.  

USD/JPY short-term technical outlook

The USD/JPY pair is overbought and could retreat further in the near-term. The daily chart shows that technical indicators have lost their bullish strength near extreme readings, while sellers surged around a bearish 200 SMA. Still, the pair is developing above the 20 and 100 SMAs, and a slide at this point would be considered corrective. In the 4-hour chart, the pair remains above all of its moving averages, while technical indicators already corrected overbought readings to stabilize within positive levels.

Support levels: 105.20 104.85 104.40  

Resistance levels: 105.75 106.10 106.45

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