USD/JPY Forecast: Risk-off triggers a bearish breakout

Valeria Bednarik FXStreet

USD/JPY Current price: 106.33

Tensions between the US and China and rising coronavirus cases undermine the market’s mood.
The US session will bring the preliminary estimates of Markit July PMIs.
USD/JPY trading at one-month low and en route to break below 106.00.

The USD/JPY pair has broken its range to the downside, hitting a fresh one-month low of 106.16. Risk-aversion leads the way amid mounting tensions between the US and China. This last has ordered the closure of the US consulate in Chengdu, as Chinese Foreign Ministry considers the measures a legitimate and necessary response. Meanwhile, the coronavirus pandemic keeps taking its toll. The US has surpassed 4 million cases and reported over 147K deaths, with 1 million new cases in the last two weeks.

The dollar is the weakest across the FX board, as equities trade dip into the red and Treasury yields fall. With Japan on holidays these days, no data has been released in the country. The US session, however, will bring the preliminary estimates of the July Markit PMIs. The Manufacturing Index is foreseen at 51.5 after printing 49.8 in June, while Services output is expected at 51 vs. the previous 47.9.

USD/JPY short-term technical outlook

The USD/JPY pair has bounced from the mentioned low and trades around 106.30, maintaining a firm bearish stance in the short-term. The 4-hour chart shows that the 20 SMA has turned sharply lower below the larger ones, which also gain downward strength. Technical indicators, in the meantime, head firmly lower within negative levels, supporting another leg south.

Support levels: 106.15 105.80 105.45

Resistance levels: 106.60 106.95 107.30

View Live Chart for the USD/JPY

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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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