The USD/JPY currency pair reported losses and dropped just below mid-107.00s. The currency pair continued with its struggle to break through the 50-day SMA hurdle near the 107.85-90 region and came under the bearish track. However, the latest leg down in the currency air mainly driven by the risk-off market sentiment on the back of the US-China tussle, which underpinned the safe-haven Japanese yen and contributed to the pair declines.
The reason for the strong Japanese yen could also be attributed to the Bank of Japan's decision to leave its monetary policy unchanged, which also boosted the currency pair. At the press time, the USD/JPY currency pair is currently trading at 107.48 and consolidating in the range between 107.33 and 107.77.
While explaining the key factor behind the risk-off market sentiment, the already intensified conflict between the United States and China further bolstered by the Zhang Yesui warning to the United States that China will vigorously defend its interests if the U.S. does anything to undermine China's core interests. In addition, China's decision to impose new Hong Kong security law further fueled concerns about a major US-China tussle that underpinned Japan's safe-haven status and excreted downside pressure on the currency pair.
On the other hand, the upticks in the safe-haven Japanese yen were further bolstered by the Bank of Japan decision's to leave its monetary policy unchanged during the unscheduled meeting held this Friday. As well as, the Japanese central bank announced targeted loans for small and mid-sized firms in order to control the negative impact caused by the coronavirus pandemic.
However, the broad-based U.S. dollar is performing the pair's favor and helping the pair to limit its losses. After using the very harsh word from US-China, investors turned to the safe-haven dollar, which tried to exert some positive impact on the currency pair. Whereas, The U.S. Dollar Index that tracks the greenback against a basket of other currencies was up 0.19% to 199.593 by 11:44 PM ET (4:44 AM GMT). Moving on, the U.S. dollar will likely continue its bullish bias during the weekend if the geopolitical tensions remain the same.
In the absence of any key releases, the traders will keep their eyes on the U.S. dollar price action and U.S./China updates, which will continue to influence further moves in the pair.
Daily Support and Resistance
S1 107.07
S2 107.37
S3 107.49
Pivot Point 107.67
R1 107.79
R2 107.97
R3 108.27
The USD/JPY is trading at 107.587, having violated the upward trendline support level of 107.600, which is now likely to work as a resistance. On the lower side, the USD/JPY may also work as a resistance. But the 50 EMA is still extending support around 107.400 on the 4-hour chart. Below this level, the pair has the potential to drop more until 106.900. While above 107.600 level, we may see bullish trend continuation until 108. Good luck!