USD/JPY struggles with tough supply zone, COVID-19 second wave noise opens risk to 107.20

  • USD/JPY is at a critical juncture while second wave noise pipes up and questions the USD dominance.
  • US stocks could be on the verge of a breakdown, leading to a surge into the yen.
  • Technically, USD/JPY is ripe for a sell-off if 108 level continues to guard. 

USD/JPY is trading 107.85, +0.26% at the time of writing having travelled from a low of 107.52 to a high of 107.94, marking out the key levels for the week ahead. 

Bulls have capitalised on a firm ending to the solid performing quarter for Wall Street where US stocks have continued higher despite the risks of COVID-19.

The Japanese yen saw major outflows into overseas investments towards the end of the month, but that could all come back on risks of a second wave rout on US stocks.

The US dollar, on the other hand, has been in recovery mode since the end of May's decline from the 99 territories in DXY.

Second wave impact underestimated

A second outbreak of the coronavirus could force governments and people to withdraw from the economic activity, Jerome Powell, Chairman of the Federal Reserve System, said on Tuesday.

As risks of second waves elsewhere start to really play havoc, equity markets may come under pressure over the short-term, which could offer some support to the yen and help USD/JPY edge back towards 105.

However, as the coronavirus pessimism continues to mount, at least from the 'experts', markets may soon begin to take heed. 

In terms of a clean bill of coronavirus health, Japan, much like nations such as Australia, has remained an outperformer by global standards which also goes in the yen's favour. 

USD/JPY's technical outlook

In meeting upside resistance structure formed in May, USD/JPY is on the verge of a breakout one way or the other. 

At the top of the recent rally, the price continues to print higher lows at a faster rate than higher highs while upside momentum is slowing. 

Following a bullish break of an hourly symmetrical triangle, the price has also formed a shorter-term rising wedge formation within a longer-term rising wedge.

This makes for a bearish outlook, signalling that a firm breakout to the downside is on the cards if the 108 level can't be penetrated. 

107.40/50 is a critical support structure to the downside which guards a run to prior structure and a 61.8% retracement on the Fibonacci scale to 107.20.

Hourly chart

Rising wedge at the end of a bearish trend is bearish. Bulls failing to print higher highs at the same rate as higher lows, meeting supply.

A distribution phase could be on the cards. 

108.37 holds the 200-day ma which protects room towards the 109.85/98 recent high and 200-week ma.


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD bounces after upbeat COVID-19 cure news

EUR/USD is trading above 1.13, rebounding from the lows. Gilead reported that its drug Remdesevir substantially reduces mortality among COVID-19 patients. The news boosted stocks and weighed on the dollar. US coronavirus statistics are due out.


GBP/USD recaptures 1.26 as the market mood improves

GBP/USD is trading above 1.26 as the market mood improves and the safe-haven dollar retreats. Investors are shrugging off Brexit concerns and focusing on hopes to cure coronavirus. US COVID-19 statistics are due out.


XAU/USD consolidates daily gains above $1,800

After advancing to its highest level since September of 2011 at $1,818 on Wednesday, the XAU/USD pair staged a correction and briefly dropped below $1,800 on Thursday.

Gold News

Cryptocurrencies: War for dominance hit the bedrock of the market

Bitcoin tried to regain market share and activated sales in the Altcoin segment. BTC/USD, ETH/USD and XRP/USD are looking for supports and a rebound to push them to new elative highs. The current compression on the XRP/USD chart could trigger an exploding movement.

Read more

WTI once again breaks $40 per barrel after trading lower in early EU trade

There has been quite the bounce in WTI since the EU session after some strong selling pressure during Thursday and overnight. Once again on Friday's session, the price has taken the USD 40 per barrel handle. 

Oil News