Today in the early European trading session, the USD/JPY currency pair failed to stop its initial gaining streak. They dropped below the 106.00 marks mainly due to the downbeat market trading sentiment, driven by the combination of gloomy headlines like US-China and US-Iran tussle, which eventually underpinned the safe-haven Japanese yen currency and contributed to the pair drops. The broad-based U.S. dollar strength, backed by the upticks in the U.S. Treasury bond yields after the FOMC meeting report, becomes the key factor that kept the lid on additional losses in the currency pair. At this moment, the USD/JPY currency pair is currently trading at 105.92 and consolidating in the range between 105.89 - 106.22.
As we already mentioned that the U.S. Treasuries bond yields turn higher on FOMC Minutes. The FOMC's minutes revealed that most policymakers estimated yield caps and targets would only moderate benefits, making it strange for the Fed to introduce yield curve control in September. Additionally, politicians saw costs to yield caps and targets, including a rapid expansion of the balance sheet. Thus, this change of tone concerning deficit boosted the U.S. dollar.
Meanwhile, from its last policy meeting, the Fed's minutes also warned that the way to economic recovery from COVID-19 remains slippery amid the second wave of the virus.
However, the market trading sentiment remains depressive even after positive China's Commerce Ministry statement that China and the U.S. have agreed to hold trade talks "in the coming days." He also added that "The trade talks are scheduled to evaluate the progress made on their Phase 1 trade deal at the 6-month mark after it was reached in January."
Let me remind the relationship between both parties got worst further after America passed the plan to ban the Chinese video app TikTok in the wake of security threats. This, in turn, fueled fears that the trade deal between US-China could be ended.
Apart from this, the fears of rising COVID-19 cases in the U.S., Australia, Japan, and some of the notable Asian nations like India continually fueled worries that the economic recovery could be halted underpinned demand for the Japanese yen and kept the currency pair down. However, these fears were further boosted by the Federal Reserve's recent comments that the path to economic recovery from COVID-19 remains highly uncertain. As per the latest report, the global virus count crossed 22 million, and the fresh wave is continuously gaining strength in Europe.
However, the on-going political impasse over the shape and size of the next U.S. fiscal recovery package also played its role in declining equity markets. It is worth reporting that the U.S. lawmakers failed to provide any details of the much-awaited coronavirus (COVID-19) phase 4 aid package. But the hopes were initially revived amid the reports that the senior U.S. official said that he notices a 'real desire' by some Democrats and Republicans to reach an agreement on a smaller stimulus deal of around $500 billion.
The reason for the risk-off market sentiment could also b attributed to the latest tussle between the US-Iran. The U.S. President Donald Trump showed his intention to announce punitive measures on Iran. As well as, the Secretary of State Mike Pompeo warned that the U.S. would hold the Dragon Nation and Russia accountable if they even try to interfere in the Iran issue.
At the USD front, the broad-based U.S. dollar succeeded in extending its early-day gains and took the safe-haven bids on the day amid market risk-off sentiment. However, the gains in the U.S. dollar could also be associated with the U.S. Federal Reserve's recent report, which pushed the U.S. Treasury yields higher and helped the U.S. dollar further. However, the gains in the U.S. dollar become the key factor that capped further downside for the currency pair. Whereas, the U.S. Dollar Index that tracks the greenback against a bucket of other currencies rose by 0.03% to 93.052 by 9:44 PM ET (2:44 AM GMT).
In the absence of the major data on the day, the market traders will keep their eyes on the USD price dynamics and coronavirus headlines, which could play an essential role in managing the intraday momentum. In the meantime, the U.S. Jobless Claims, Philly Fed Manufacturing Survey, and the European Central Bank (ECB) policy meeting minutes will be key.
Daily Support and Resistance
Pivot Point 105.79
The USD/JPY pair is trading at 105.950 with immediate support at 105.760 and resistance at 106.105 level. The USD/JPY pair has already completed 50% Fibonacci retracement on the four hourly charts. While the bullish crossover of 50% Fibo levels can lead the USD/JPY pair until 61.8% Fibonacci level of 106.320. Let's consider taking sell trades below 105.760 and buying trades over 106.150. Good luck!