USD/JPY Forecast: Sustained move beyond 110.00 would set the stage for further gains


  • USD/JPY regained strong positive traction on Tuesday and erased the previous day’s losses.
  • A turnaround in the risk sentiment undermined the safe-haven JPY and remained supportive.
  • Rebounding US bond yields benefitted the USD and provided an additional boost to the pair.

The USD/JPY pair caught some fresh bids on Tuesday and recovered a major part of the previous day's losses to the 109.00 neighbourhood, or near two-month lows. As investors assess the economic impact of the fast-spreading Delta variant of the coronavirus, a dramatic turnaround in the risk sentiment undermined the safe-haven Japanese yen. This was seen as a key factor that triggered the initial leg of the intraday positive move. Bullish traders further took cues from a solid rebound in the US Treasury bond yields, which pushed the US Dollar Index to the highest level since early April.

In fact, the yield on the benchmark 10-year US government bond reversed an intraday slide to more than five-month lows and climbed back above the 1.20% threshold. On the economic data front, US Building Permits dropped 5.1% MoM to a 1.598 million annualized rate in June. Separately, Housing Starts rose 6.3% MoM to 1.643 million annualized pace during the reported month. The mixed housing market data, however, failed to provide any meaningful impetus to the major. Nevertheless, the pair settled near the top end of its daily trading range and traded with a mild positive bias during the Asian session on Wednesday.

A generally positive risk tone, along with dovish comments by The Bank of Japan (BoJ) Deputy Governor Masayoshi Amamiya, acted as a headwind for the JPY and remained supportive. Amamiya warned that the risks to the Japanese economic outlook remain skewed to the downside and that it will take time to achieve the price stability target of 2% inflation. He added that sluggish inflation makes it necessary for the BoJ to persistently continue to conduct powerful monetary easing. This, to a larger extent, offset a jump in Japanese exports in June, which boosted hopes for an export-led recovery.

Moving ahead, there isn't any major market-moving economic data due for release from the US on Wednesday. Hence, developments surrounding the coronavirus saga will drive the broader market risk sentiment and the safe-haven JPY. Traders might further take cues from the US bond yields, which will influence the USD price dynamics and produce some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair this week showed some resilience below 100-day SMA and the subsequent positive move favours bullish traders. Some follow-through strength beyond the 110.00 mark, representing the 38.2% Fibonacci level of the 111.66-109.07 recent leg down, will reinforce the positive outlook. The pair might then accelerate the momentum towards the 50% Fibo. level, around the 110.35 region, en-route the 110.65-70 area, or the 61.8% Fibo. level. Sustained strength beyond has the potential to push the pair further beyond the 111.00 mark and allow bulls to retest monthly swing highs, around the 111.65 region.

On the flip side, the 23.6% Fibo. level, around the 109.65 region, now seems to protect the immediate downside. This is closely followed by 100-day SMA, currently near the 109.50-45 area, which if broken decisively might be seen as a fresh trigger for bearish traders. The pair might then turn vulnerable to challenge the 109.00 mark before eventually dropping to the next relevant support near the 108.65 region.

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD recoups 1.1800 mark amid USD weakness

EUR/USD prints minor gains on Tuesday’s morning Asian session. The pair opened higher and moved in a narrow trade band with 15 pips movement. The Euro continues to trade in a range bound manner for the past two weeks.

EUR/USD News

GBP/USD edges higher past 1.3800 as covid optimism battles Brexit woes

GBP/USD seesaws around 1.3820, following the heaviest daily run-up in a week, amid Tuesday’s Asian session. The cable pair benefited from the latest reduction in the coronavirus numbers at home, as well as the broad softening of the US dollar, the previous day.

GBP/USD News

EUR/USD recoups 1.1800 mark amid USD weakness

EUR/USD prints minor gains on Tuesday’s morning Asian session. The pair opened higher and moved in a narrow trade band with 15 pips movement. The Euro continues to trade in a range bound manner for the past two weeks.

EUR/USD News

VeChain price reaches the limit, easy money in VET has been made

VeChain price did trade below the June 22 low in July but has responded with a 40% return (based on the current price) over the last six trading days, a sign of commitment and emotion in a cryptocurrency that had lead the market lower. 

Read more

EU Wrap: Big earnings week, Fed, data, oil, gold, Bitcoin surge

A cautious start to the week as investors prepare for an onslaught of earnings and data, not to mention the Fed meeting on Wednesday. It should be a thrilling week and it comes on the back of a hugely impressive bounceback.

Read more

Majors

Cryptocurrencies

Signatures