USD/JPY capped below 133.80/90 after its reversal from 134.50

The US Dollar’s mild rebound from intra-day lows at 133.50 is lacking follow-through right below the 133.80/90 resistance area, and the pair remains looking for direction within a 50-pip range, after retreating from the 134.50 area on Wednesday.

The BoJ announces more bond purchases

The Japanese currency appreciated about 0.6% during the Asian session, after the Bank of Japan announced two additional rounds of unscheduled bond purchase operations, responding to market speculation that points out to further relaxation of the bonds yield’s curve controls.

On the other end, the US Dollar is trading without a clear direction in a choppy post-Christmas market, with European stock markets picking up after a negative opening as concerns about China are dampening appetite for risk.

The exponential increase in COVID-19 infections has crushed investors’ enthusiasm about the end of the Zero-COVID policy and has dampened hopes of a quick economic recovery in China.

Recent reports revealing the high pressure that the new coronavirus wave is causing on the health system have moved some countries to impose restrictions on Chinese travelers. US Italy and India have already announced mandatory tests in arrivals from China and other countries are likely to follow suit.

On the macroeconomic front, with the Japanese calendar lacking relevant releases, in the US, the weekly jobless claims and oil stocks data could ofer a fresh boost to the US dollar crosses.

USD/JPY: Breach of 130.40 might trigger a further downtrend – SocGen

Currency analysts at Société Générale observe the pair biased lower and point out to 130.40 support: “The pair is now in the vicinity to August trough near 130.40. An initial bounce is not ruled out however 138 is likely to cap (…) Failure to defend 130.40 would mean a deeper downtrend. Next potential objectives could be at projections of 128 and 2015 levels of 125.85/124.00.”

Technical levels to watch