USD/JPY Forecast: Risk of a bearish extension once below 106.35

Valeria Bednarik FXStreet

USD/JPY Current Price: 106.60

Rising US Treasury yields underpinned USD/JPY in spite of the broad dollar’s weakness.
Japan’s Q2 Gross Domestic Product expected to have fallen a record 27.2%.
USD/JPY at risk of falling further after being unable to surpass the 107.00 level.

The USD/JPY pair advanced these days, despite the broad dollar’s weakness, amid a substantial recovery in US Treasury yields. The pair surged to 107.04 mid-week, its highest since this August, to settle around 106.60. The pair fell in the last trading day of the week after it failed to take the 107.00 area for a third consecutive day. Equities traded with a soft tone, with Wall Street ending mixed yet little changed on a daily basis. As per Treasury yields, they remained flat amid mixed US economic data.

The JPY was also underpinned by Japanese data, as the Tertiary Industry Index recovered to 7.9% in June from -2.9% in the previous month. During the upcoming Asian session, the country will publish the preliminary estimate of Q2 GDP, with the economy seen contracting a record 27.2% in the three months to June, down from -2.2% in Q1. The country will also publish June Industrial Production, previously at -17.7% YoY and Capacity Utilization, previously at -11.6% MoM.

USD/JPY short-term technical outlook

The daily chart for the USD/JPY pair shows that its weekly rally stalled a few pips below a directionless 100 DMA, but it has spent most of it above a bearish 20 DMA. The Momentum indicator in the mentioned time-frame advanced within positive levels, maintaining its bullish slope, while the RSI is also above its midline, but has already turned south. In the 4-hour chart, the pair broke below its 20 and 200 SMA, while technical indicators crossed their midlines into negative levels before turning flat. The risk of a bearish extension will likely increase on a break below 106.35, the 23.6% retracement of the latest daily advance.

Support levels: 106.35 106.00 105.60

Resistance levels: 107.00 107.45 107.90

View Live Chart for the USD/JPY

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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