USD/JPY: testing key resistance at 504hr-SMA ahead of heavier supply zone

USD/JPY is consolidating around the 107.20 level and is currently, trading at 107.19, up 0.56% on the day, having posted a daily high at 107.39 and low at 106.56. 

With the US and Canadians back from holiday, traders are buying up the dollar and treating it as a cheaper way in as a safe haven against a stock market in decline and higher rates and all in despite of the southerly trend in USD/JPY that has taken the appearance of a new longer-term cycle to the downside. 

We have the US 2-year Treasury auction at the top of the hour which could cause some volatility for the pair, while otherwise, it looks as a little quiet out there while markets seem to be in an extension of Friday's closing trade as traders await the Fed minutes this week.

EUR/JPY inched up on Japanese concerns of a stronger Yen

A notable decline on the cards?

Analysts at Scotiabank explained that the JPY has been underperforming all of the G10 currencies with the exception of SEK, with a notable 0.8% decline from Friday’s close. "The balance of risk appears to have shifted in the aftermath of Friday’s bearish shooting star (USD/JPY hammer) off a fresh multi-year high. The sentiment is dominating and risk reversals are suggestive of a notable decline in demand for protection against JPY strength."

USD/JPY levels

To the upsdie, should the dollar continue its advances, bears commitment would be tested around 107.67 as being a tenkan line where supply could ultimately halt the recovery. Before then, we have the 4hr 50 SMA as first line resistance at 107.35. 108.80 guards 110.40 on the wide. To the downside, 105.73 is the 200-month ma guarding a run to 100.70/99.00 as the 2016 low. Nearer term support comes as 106.70/80 ahead of 106.40.