• USD/JPY recorded fresh tops in the 104.20 region on Thursday.
  • A move to YTD lows around 101.20 looks unlikely for the time being.

Despite the ongoing bounce from recent lows, the bearish perspective around USD/JPY remains unaltered for the time being. In fact, the pair breached the key support at 104.40 on Thursday, extending the leg lower to the 104.20/15 band, clinching at the same time fresh monthly troughs.

Dollar weakness and lower US yields followed the historic slump in the US economic activity in the second quarter along with the protracted deterioration in the US labour market and the unabated advance of the pandemic. If we add political jitters plus the omnipresent US-China effervescence, the continuation of the sell-off in the pair appears more than justified.

Later on Friday, the focus of attention will be on the publication of inflation figures tracked by the PCE seconded by Personal Income/Spending and the final July gauge of the Consumer Sentiment.

Near-term Outlook

USD/JPY bounces off recent 4-month lows near 114.20. Despite the prevailing offered bias and the likelihood of extra pullbacks, the pair is unlikely to recede to the area of 2020 lows around 101.20, at least in the short-term horizon. For this scenario to materialize it would be needed a sharp worsening of macro conditions, which looks improbable at the moment. Further out, the current oversold condition of the pair calls for the continuation of the technical rebound to, initially, the lower bound of the May-July range in the 106.00 neighbourhood.


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