USD/JPY 110 on the cards on a fade of current correction?

USD/JPY held 110.50 for the best part of overnight markets with the US being out for MLK day. Currently, USD/JPY trades at 110.72 with a high of 110.78 and a low of 111.43.

USD/JPY has spiked as the dollar gets picked up for cheap by Tokyo traders anticipating a recovery of the dollar when the US return to desks. The yen is being sold off in a minor way against the euro as well, with EUR/JPY supported by the 21-H SMA at 135.54. 

BoJ will be key

Meanwhile, the markets will look ahead to this week's US data and the BoJ next week. Analysts at Rabobank noted that net JPY shorts continued to increase last week but they remain below their November highs. "Strong growth and a perceived drop in geopolitical risk are all negative for the safe haven JPY. However, the BoJ’s policy meeting later in January will be closely watched given talk that QQE could be adjusted this year," argued the analyst at Rabobank. 

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that the bearish trend keeps gaining traction, as the pair develops further below its 100 and 200 DMAs, while in the daily chart, technical indicators accelerate their slides, entering oversold territory. "In the 4 hours chart, the 100 SMA crossed below the 200 SMA both in the 112.50 region, while the RSI indicator heads south around 27 as the Momentum consolidated within bearish territory, all of which supports a test of 110.10 the next short-term support," Valeria added.