USD/JPY Forecast: Risk-appetite likely to limit the downside

USD/JPY Current price: 111.05

• US Treasury yields were sharply down on Friday, weighing on USD/JPY.
• Wall Street keeps rallying, with the S&P closing at record levels for seven days in a row.
• USD/JPY is correcting lower in the near-term, the decline may accelerate once below 110.80.

The USD/JPY pair hit 111.65, its highest since March 2020, retreating afterwards to the 111.00 area but ending a fourth consecutive week with gains. The pair retreated ahead of the close,  despite the ruling upbeat mood on the back of easing government bond yields. The 10-year Treasury yield not only held under 1.5% but settled at 1.43%, a multi-month low. All-time highs in Wall Street limited the decline as the S&P closed at record levels for a seventh consecutive day.

Data wise, Japan published the June Monetary Base, which rose by less than anticipated, up by 19.1% YoY. The focus was on US employment figures, as the country added the most jobs in a month since last August, although the unemployment rate ticked higher to 5.9%. Japan won’t publish macroeconomic data until next Tuesday.

USD/JPY short-term technical outlook

The USD/JPY pair daily chart shows that Friday’s decline fell short of suggesting further declines ahead. The pair keeps developing above bullish moving averages, with the 20 SMA providing dynamic support at around 110.35. Technical indicators retreated from their highs, maintaining their bearish slopes but within positive levels. The 4-hour chart shows that technical indicators retreated sharply from overbought readings and are approaching their midlines, as the price pierces a bullish 20 SMA, favoring a bearish extension mainly on a break below 110.80, the immediate support level.

Support levels: 110.80 110.35 109.90

Resistance levels: 111.20 111.65 112.00

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