USD/JPY pausing its bullish correction above 106 as Japan’s Q2 GDP beat estimates

USD/JPY drops to 106.25 as markets in Tokyo open for Tuesday’s trading. The yen pair recently reacted to better than forecast prints of the second quarter (Q2) Japanese GDP.

Read: Japan Q2 real GDP -7.9% QoQ (prelim -7.8%, Reuters poll -8.1%)

Other than the Q2 GDP, statistics from Japan like Trade Balance and Bank Lending, for July and August respectively also flashed better than forecast readings. However, the downbeat performance of Overall Households Spending and Current Account data for July keeps the pair traders troubled.

The market mood remains mostly sluggish amid the escalating tension between the US and China, as well as the recent border tussle among New Delhi and Beijing. Though, hopes of further stimulus from the US keep, followed by Friday’s upbeat data favor the greenback bulls.

It’s worth mentioning that the calls of a snap election in Japan, other than the PM leadership vote scheduled next week, also weigh on the market’s risk-tone sentiment.

Amid these catalysts, S&P 500 Futures rise 0.68% to 3,440 but the US 10-year Treasury yields await more clues to extend Friday’s heavy gains beyond 0.72%.

Moving on, Japan’s Eco-Watcher Survey for August becomes the only thing to decorate the Asian calendar, which in turn pushes traders to await the American market players’ performance after the extended weekend. It should, however, be noted that the escalation risk-off mood, coupled with the broad US dollar strength, is likely to remain for a bit longer.

Technical analysis

The pair’s sustained bounce off 105.20 favors the run-up to 50-day SMA, near 106.40, but any further upside will be capped by the 100-day SMA, at 106.88 now. Meanwhile, an ascending trend line from July 31, currently around 105.55, may restrict immediate downside.