The USD/JPY currency pair successfully stopped its previous losing streak and rose above mid-105.00 marks mainly due to the broad-based U.S. dollar fresh strength, buoyed by the intensifying US-China tensions, which eventually helped the U.S. dollar to put the safe-haven bid. Besides, the upbeat market sentiment, backed by the optimism that the U.S. policymakers showed signals of upcoming stimulus, undermined the safe-haven Japanese yen and contributed to the pair's gains. In the meantime, the Japanese Prime Minister (PM) Shinzo Abe's latest positive comment about the country's coronavirus situation and the likely treatment options gave some support to the Japanese yen and capped further upside in the currency pair. Currently, the USD/JPY is trading at 105.54 and consolidating in the range between 105.35 - 105.70.
Despite concerns about the ever-increasing coronavirus cases across the world and worsening US-China relations, the investors continued to cheer the hopes of U.S. fiscal stimulus package and optimism over the treatment of the COVID-19. However, the fresh updates that the U.S. policymakers have moved closer to agreeing on the next fiscal stimulus package, as August vacations were coming, added strength to the market risk sentiment.
On the other hand, the latest positive updates about the coronavirus treatment also positively impacted the trading sentiment and gave support to the USD/JPY currency pair by undermining the safe-haven Japanese yen.
Across the pond, the surge in coronavirus cases continued to gain pace, across the world, and the big portion of cases is only associated with the United States. As in result, the investors remained cautious that the intensifying virus cases could undermine the economic recovery as witnessed by the Fed bearish outlook. However, these fears have initially influenced the market trading sentiment and capped gains in the currency pair.
Apart from the virus woes, the long-lasting tussle between the world's two largest economies remained on the cards as China's ambassador to the U.S. recently gave warning against the U.S. move to send ships to the South China Sea, which could raise further tensions between both nations and harm the trade deal. Whereas, President Trump announced yesterday that TikTok should give its U.S. operations to another company within one month or be banned in the U.S. due to significant security threats. In return, China's Foreign Ministry recently said on the day that it would firmly oppose to U.S. actions.
As a result, the broad-based U.S. dollar succeeded in putting safe-haven bids and reported gains. However, the U.S. dollar gains could be short-lived or temporary due to the worries that the economic recovery in the U.S. could be stopped because of the reappearance of coronavirus cases. However, the gains in the U.S. dollar kept the USD/JPY currency pair higher. Whereas, the U.S. Dollar Index that tracks the greenback against a basket of other currencies recovered to 92.903.
Today, the eyes will remain on the U.S. labor market reports, which can drive sharp movements in the market. The unemployment rate is expected to drop to 10.5% from 11.1% during the previous month, while Non-Farm Employment Change is expected to report 1530K jobs added last month, which is just a fraction of economists' expectations 4800K.
Daily Support and Resistance
S1 104.49
S2 105.05
S3 105.33
Pivot Point 105.6
R1 105.88
R2 106.15
R3 106.71
On the 2 hour timeframe, the USD/JPY pair is stuck in a narrow trading range of 105.350 - 105.700. The odds of bearish or bullish breakout remain pretty high upon releasing the U.S. NFP data today. On the lower side, a bearish breakout can open selling until 104.775 and 104.185 level. Conversely, the bullish breakout of 105.700 level can extend buying unto 106.290. The RSI is neutral, while the 50 EMA suggests bearish bias, but it will be better to have a position after the market shows us a breakout. Good luck!