The USD/JPY pair met with some fresh supply on Thursday and eroded part of previous session's sharp recovery from 6-day lows.
On Wednesday, the pair tumbled to 108.45 level, the lowest level since August 29, but managed to promptly rebound beyond the 109.00 handle. The recovery move got an additional boost from the US ISM non-manufacturing PMI, which showed services sector growth rebounded in August.
• US: Economy growing solidly - NAB
This coupled with a three-month extension of the US debt ceiling, and renewed optimism over the US President Donald Trump's tax reforms further improved sentiment around the US Dollar and lifted the pair to 109.40 area.
• US Treasury Secretary Mnuchin expects tax bill to be in congress in month
However, the ongoing crisis over N. Korea continues to underpin the Japanese Yen's safe-haven demand and kept a lid on any further up-move for the major. The market remained worried on reports that N. Korea is preparing to launch a new intercontinental ballistic missile as soon as Sept. 9.
• South Korean PM says North Korea may launch a missile on September 9th
In absence of any major market moving economic releases, ECB-led volatility in the FX market might influence broader market risk sentiment and help traders to grab some short-term trading opportunities.
Technical outlook
Valeria Bednarik, Chief Analyst at FXStreet noted, "the recovery remains corrective, as despite the almost 100 pips' advance, the pair remains below its moving averages in the 4 hours chart, also below the 23.6% retracement of the July/August decline, this last around 109.75. Technical indicators in the mentioned chart have bounced sharply from oversold readings, but remain within negative territory, overall indicating that the upward potential is limited at least as long as the price remains below the mentioned Fibonacci resistance."
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