USD/JPY keeps the red around 135.50 amid weaker yields, US data eyed

USD/JPY is keeping its corrective downside intact for the second straight day on Wednesday, as bears capitalize on retreating Treasury yields.

Looming recession risks, expectations of aggressive Fed tightening and energy crisis in China and Europe fuel risk-off flows into the save-haven US bonds, in turn, knocking down the yields across the curve.  

Broad risk-aversion also helps the dollar recover some lost ground but has little to no positive impact on the major, as it reverses from monthly highs of 137.70. The greenback clings to the overnight recovery gains, as investors reassess the hawkish Fed expectations following the releases of weak US S&P Global business PMIs and New Home Sales.

Meanwhile, the yen could be drawing support from Japanese Prime Minister Fumio Kishida’s announcement of relaxation of covid border controls starting from September 7. Looking ahead, the US Durable Goods Orders and Pending Home Sales data will be closely eyed before the all-important Fed’s Jackson Hole Symposium held from August 25 to 27.

From a short-term technical perspective, bears have retained control after bulls failed to clear the rising trendline resistance at 137.71 on Tuesday.

Note that the pair has been traversing within a three-week-long rising channel formation. Rejection at the channel resistance revived the selling interest, with sellers now seeking a test of the mildly bullish 50-Daily Moving Average (DMA) support at 135.50.

The next stop for bears is seen at the horizontal 21 DMA at 134.59. The 14-day Relative Strength Index (RSI) is edging lower towards the midline, justifying the latest move lower.

USD/JPY: Daily chart

Daily closing above the rising trendline resistance, now at 137.90, will confirm a bullish channel, fuelling a fresh uptrend towards the July 21 highs of 138.87.

Further up, all eyes will be on the 139.00 barrier, as bulls march towards the multi-year highs of 139.39.

USD/JPY: Additional levels to consider