The USD/JPY pair extended recovery momentum from the vicinity of 115.00 psychological mark and is now building on to its strength back above 116.00 handle.
Market participants remain convinced that fiscal policy by the incoming Trump administration would lead to faster US economic growth and hence, dip-buying strategy is limiting the US Dollar's downside. At the time of writing, the pair was trading closer to session peak near 116.30 region.
Today's price action suggests that traders might be aggressively unwinding their bearish bets and could also be taking new positions ahead of the jobs data, later during NA session. An upbeat NFP report would increase prospects of faster Fed rate-tightening cycle in 2017 and eventually provide fresh bullish impetus for the greenback's well-establish up-trend.
However, the prevalent risk-aversion sentiment, as depicted by mildly cautious sentiment around equity markets and sliding treasury bond yields, might lend some support to the Japanese Yen's safe-haven appeal and restrict further recovery for the pair.
Omkar Godbole, Analyst and Editor at FXStreet, notes, "The double top reversal pattern has opened doors for a sell-off to 113.48 levels. The sell-off looks possible, especially if the US wage growth data disappoints market expectations."
He further writes, "On the higher side, only a daily close above the double top neckline level (now resistance) of 116.04 would signal bearish invalidation. Another factor in favour of bears is the daily RSI, which has breached 50.00 levels and is pointing lower."
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