USD/JPY gains traction on improved risk sentiment, approaches 113

After easing to a fresh session low at 112.33, the USD/JPY is making a modest recovery despite the USD weakness as investors turn their attention to equity indexes. At the moment, the pair is trading at 112.83, gaining 0.25% on the day.

Today's only macro data from the U.S. revealed that the Empire State Manufacturing Index, released by the Federal Reserve Bank of New York, dropped to 9.8 in July from 19.8 in June, suggesting that the optimism in the industry started to fade. The US Dollar Index, which was able to rise to 95.12 in the early European session, lost its strength and refreshed its lowest level since early September at 94.80 in the NA session. As of writing, the index is at 94.90, where it closed the previous week.

On the other hand, major equity indexes in the U.S. started the week on a positive note with the Nasdaq composite index reaching new record highs in the first half of the session. Although the Dow Jones Industrial Average and the S&P 500 indexes don't perform as well as the Nasdaq at the moment, they are both in the positive area.

Technical outlook

As of writing, the pair is testing the critical 200-DMA, which sits at 112.85. A daily close above that level could open the door for further recovery gains in the near-term. 113.60 (Jul. 14 high) could be seen as the initial hurdle ahead of 113.80 (Jul. 12 high) and 114.50 (Jul. 11 high). On the downside, 112 (psychological level) aligns as the first technical support followed by 111.40 (100-DMA) and 110.95 (Jun. 22 low).

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