During Tuesday's European trading session, the USD/JPY currency pair failed to maintain its early-day bullish momentum and started to reporting losses on the day. However, the bearish momentum around the currency pair was exclusively sponsored by the broad-based U.S. dollar weakness that dragged the dollar gauge to the lowest since May 2018. The U.S. dollar was pressured by the speculations of long term low U.S. interest rates. The upbeat market mood also keeps the U.S. dollar away from positioning any safe-haven bids.
On the contrary, the upbeat market mood, backed by the positive activity numbers from the U.S., China, and Australia, helps the currency pair limit its deeper losses by undermining the safe-haven Japanese yen. Also, capping the downside momentum could be ongoing Japanese political uncertainty, which damaged the JPY and provided some support to the currency pair. The USD/JPY currency pair is currently trading at 105.60 and consolidating in the range between 105.59 - 106.03.
The reason for the upbeat market sentiment could be associated with the positive activity numbers from the U.S., China, and Australia, which eventually fueled the hopes of economic recovery from the coronavirus pandemic. The optimism was evident after China's Caixin manufacturing Purchasing Managers' Index (PMI) for August increased to 53.1, and Japan's manufacturing Purchasing Managers' Index (PMI) witnessed an increase to 47.2 in August.
Moreover, the risk sentiment was further bolstered by decreasing coronavirus (COVID-19) cases in the U.S. and talks surrounding the coronavirus vaccine. The market trading sentiment cheering the hopes of the U.S. stimulus package, mainly triggered by positive comments from the American Treasury Secretary Steve Mnuchin. However, the equity market's positive sentiment tends to undermine the safe-haven Japanese yen and support the major. But the gains were capped by the ongoing weakness in the U.S. dollar.
At the USD front, the U.S. dollar still foud on the bearish track and refreshed the fresh low since May 2018 level on the day. However, the reason could be associated with the Federal Reserve's new policy framework, which fueled bets that the U.S. will continue to remain low compared to other countries. The losses in the U.S. dollar kept the currency pair lower. Whereas, the U.S. Dollar Index Futures that tracks the greenback against a bucket of other currencies dropped by 0.21% to 91.938 by 10:07 PM ET (3:07 AM GMT).
Across the ocean, the ongoing Japanese political uncertainty failed to give any major support to the currency, at least for now. Japan's ruling Liberal Democratic Party (LDP) General Council Chairman Shunichi Suzuki stated that the leadership election would be carried in a simplified rather than full-scale format respecting the urgency. This looming uncertainty initially weighed on the Japanese yen currency and gave some support to the major, but the support was short-lived as the U.S. dollar continues losing its ground and becomes the major factor that keeps the currency pair down.
Looking ahead, the market traders will keep their eyes on August's U.S. manufacturing activity figure, which is due to be published later in the day. Durable goods and employment will also be key to watch. In the meantime, the updates surrounding the fresh Sino-US tussle, this time over the South China Sea, and the coronavirus (COVID-19) updates, could not lose their importance.
Daily Support and Resistance
S1 105.28
S2 105.58
S3 105.77
Pivot Point 105.89
R1 106.08
R2 106.19
R3 106.5
The USD/JPY currency pair shows a sharp bearish movement amid the breakout of the upward channel at 106.014 level. For now, it's trading at 105.345 level, heading towards the next support level of 105.125. Below this level, the USD/JPY pair may find support at 104.746 level. The RSI and MACD are both entering the oversold zone; therefore, we can expect USD/JPY to have some breather around 105 support areas. Let's keep an eye on 105 and 104.745 levels to take a bullish trade in the USD/JPY pair. Good luck!