USD/JPY clings to strong recovery gains, around mid-112.00s

   •  A goodish pickup in the US bond yields helps build on overnight rebound.
   •  Stability in equity markets dent JPY’s safe-haven and remain supportive.

The USD/JPY pair built on the overnight rebound from sub-112.00 level and traded with a positive bias for the third session in the previous four.

A fresh leg of a selloff in the US equity markets on Thursday benefitted the Japanese Yen’s safe-haven status and prompted some aggressive selling around the major. The global flight to safety, reinforced by a sudden drop in the US Treasury bond yields, was seen as one of the key factors behind the pair’s sharp intraday retracement of nearly 90-pips from a one-week high level of 112.73.

The pair, however, showed some resilience below the 112.00 handle, with the prevailing bullish sentiment surrounding the US Dollar helping the pair to rebound around 25-pips from daily lows. The up-move extended through the early European session on Friday and was now supported by some renewed uptick in the US bond yields. 

This coupled with a combination of negative factors exerted some additional downward pressure on the Japanese Yen and remained supportive of the positive momentum. Comments by the BoJ Governor Haruhiko Kuroda, saying that it remains vital to continue easing persistently, undermined the Japanese Yen and remained supportive of the positive momentum.

The pair got an additional boost following a mildly positive opening across European equity markets, pointing to some initial signs of stability in the global financial markets and which tends to dent demand for perceived/traditional safe-haven assets/currencies. 

It would now be interesting to see if bulls are able to maintain their dominant position or the pair once again fails to make it through the 112.65-70 horizontal supply zone amid relatively thin US economic docket, featuring the release of existing home sales data later during the early North-American session.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: “A convincing break above 112.73 would signal a continuation of the recovery rally toward 113.18.”

“On the other hand, only a daily close below the ascending trendline would validate the bearish outside-day and open the doors to a deeper drop toward 110.88 (200-day EMA),” he further added.