The USD/JPY managed to stop its previous early-session losses and rose to just above the 107.00 level, mainly due to the broad-based U.S. dollar strength triggered by multiple factors. The modest pullback in the global equity markets supported by the concerns of ever-increasing coronavirus cases and US-China worse relations might extend some support to the safe-haven Japanese yen and cap the additional gains in the currency pair.
However, the ever-increasing COVID-19 cases continued to overshadow the latest optimism over the coronavirus vaccine and further dented investors' appetite for perceived riskier assets. The risk-off mood was witnessed by a fresh leg down in the U.S. Treasury bond yields, which might further hold investors from placing any bullish bets and cap gains for the USD/JPY pair.
Besides, the risk-off market sentiment was further bolstered by the worse-than-expected Chinese domestic consumption data. Although China's GDP returned to growth in the second quarter, up 3.2%, retail sales data was worse than expected.
At the US-China front, the long-lasting tussle between the world's top two economies still increased day by day and did not show any sign of easing. Even got an additional boost after U.S. President Donald Trump signed a bill sanctioning Chinese officials in response to Beijing's national security law for Hong Kong and issued an executive order that ended preferential treatment for Hong Kong, which initially challenged the risk-on market sentiment. As in result, the Dragon Nation also warned the U.S. to retaliate. Whereas, the United States also said it was studying the national security risks of social media applications, including China's TikTok and WeChat.
At the USD front, the broad-based U.S. dollar succeeded in extending its previous session gains and remained well bid on the day as investors turned to the safe-haven in the wake of an intensified tussle between US-China. However, the gains in the U.S. dollar kept the currency pair high. Whereas, the U.S. Dollar Index that tracks the greenback against a basket of other currencies gained 0.01% to 96.032 by 10:12 PM ET (3:12 AM GMT).
Looking forward, the market traders keep their eyes on the U.S. economic docket, which will show the release of Retail Sales m/m, Philly Fed Manufacturing Index, Unemployment Claims, and Business Inventories m/m which could play a key role in influencing the intraday momentum. Whereas, the updates concerning China-US Relations could not lose their importance.
Daily Technical Levels
Pivot point: 106.97
The USD/JPY pair is trading with a bullish bias, testing the 50 EMA resistance at 107.150 level. Closing of candles below this level can drive the selling trend until 106.700 level. The 4-hour chart, the downward channel is extending resistance at 107.150, and we may see USD/JPY is likely to stay bearish below this level. However, the bullish breakout of the 107.350 level can extend the buying trend until 107.750 level. Fellas, let's wait for USD/JPY to test 107.350 to decide whether to go ling above this level or short below this. Good luck!