USD/JPY holds in bearish territory ahead of Jackson Hole

• USD/JPY bulls seeking a break of daily resistance trendline. 
• Bears on the lookout for a benign Jackson Hole that could see a lower US dollar. 

USD/JPY is trading between a 109.41-109.88 range on Tuesday in the countdown to the Jackson Hole that starts this Thursday.

The US dollar is in wait-and-see mode, licking its wounds after slipping to a critical low of 92.80 as measured against a basket of currencies, including JPY, in the DXY index.

More on the trajectory of the US dollar index here: 

• US dollar at make or break point, countdown to taper

Risk appetite in global markets has started to recover which is a potential headwind for both the yen and US dollar relative to their safe haven status amongst forex. 

The MSCI world equity index, IACWI, which tracks shares in 50 countries, rose another 0.54% following a 1.1% gain at the start of the week, leaving it on course to recovery towards fresh bull cycle highs.

Investors in the US have cheered news that the US Food and Drug Administration had granted full approval to the COVID-19 vaccine developed by Pfizer and BioNTech.

This is expected to accelerate inoculations in the United States.

It was a move that has sent both the NASDAQ and the S&P 500 index into new record highs with the Dow tracking higher closely behind them.

However, the Jackson Hole is an event that traders are waiting in high anticipation of which could put a pause to rising stocks, potentially underpinning the safe havens for the meanwhile. 

The recent minutes of July’s Federal Open Market Committee meeting showed a majority of attendees said it might be appropriate to begin tapering asset purchases this year.

The Jackson Hole is an event that could be used by The Fed's chair, Jerome Powell, to announce timings of when this will happen.

Equity investors have historically not liked bond tapering by the Fed. 

Casting minds back to May 22 2013, an event dubbed the "Taper Tantrum," when the then-Fed Chairman Ben Bernanke stated in testimony before Congress that the Fed may taper the size of its bond-buying program known as quantitative easing (QE), the S&P 500 fell 3% over the course of just two sessions.

The S&P 500 fell an additional 4.5% before month-end and the yen rallied vs the greenback by some 9.5%.

However, this time around, investors regard the US economic recovery as far stranger than in other nations, such as Japan, that have seen a recent resurgence on the coronavirus in the form of a highly contagious Delta variant.

This has fuelled concerns about the recovery from the global health crisis which goes a long way toward supporting the US dollar. 

However, markets have largely looked past this so far this week, with analysts citing thin liquidity as a factor driving apparent swings in risk appetite.

Therefore, it is a matter of waiting to see what Powell will have to say in his keynote speech on Friday at the Jackson Hole. 

A taper tantrum on the back of a uber hawkish outcome could well see higher US yields that would be expected to support the greenback which is at a critical juncture on the long term charts. 

See here for that analysis: US dollar at make or break point, countdown to taper 

However, a benign outcome of the event will likely pressure the greenback as traders unwind speculative longs in anticipation of the September Fed meeting instead. 

USD/JPY technical analysis

From a daily time frame perspective, the price could be on the verge of a downside extension below the dynamic trend line resistance. 

However, a break of which would likely see the pair rally into the 111's in the near term to challenge the July highs near 111.65.