• The bearish view remains well and sound around USD/JPY.
  • Immediately to the downside emerges the 104.40 region.

The selling bias around USD/JPY has accelerated since the pair broke below the multi-week consolidative range that has been in place since the start of July. The downside, which almost exclusively followed the persistent and strong dollar weakness and lower US yields, has now opened the door to a deeper pullback.

The continuation of this backdrop coupled with occasional bouts of risk aversion (with the usual suspects being the pandemic, the deterioration of the economic outlook and US-China effervescence) carries the potential to trigger a probable move to August 2019 low in the 104.40 region.

Later on Thursday, the greenback and yields are expected to be under the microscope in light of the publication of the weekly Initial Claims and the preliminary figures for US Q2 GDP.

Near-term Outlook

USD/JPY appears to have met decent support in the 104.90 region on Wednesday, managing to reclaim the 105.00 level and a tad above on Thursday. The current oversold condition of the pair calls for a potential technical rebound to, initially, the lower bound of the May-July range in the 106.00 neighbourhood. If the selling bias regains momentum, then there should be scope for another visit to the 104.40 zone. If this area of contention is breached, then there are no relevant support levels until the 2020 low at 101.18 (March 9).

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