USD/JPY Forecast: Retaining the positive bias despite dollar’s weakness

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USD/JPY Current price: 106.11

  • Tokyo inflation surprised to the upside in July, printing at 0.6% YoY.
  • US Congress remains unable to reach a deal on a next coronavirus aid package.
  • USD/JPY is short-term bullish but capped by selling interest aligned around 106.45.

The greenback is out of the market’s favour, although major pairs remain within familiar levels, trading unevenly across the board. The USD/JPY pair is currently recovering above 106.00 threshold, as the market’s optimistic stance somehow receded. News that the US Congress has been unable to reach a deal over the next aid-package is hurting the American currency.  US House Speaker Nancy Pelosi blamed President Trump for the lack of progress after over 30 million American lost their $600 benefit last week.

Meanwhile, coronavirus concerns remain the same. The number of new cases in the US has been receding, but remain around 50K per day. The WHO director, Dr. Tedros, said that there might never be a “silver bullet” against coronavirus. Bottom line, economic recoveries are moving farther away in time.

Japan published July Tokyo inflation, which came in better than expected, up by 0.6% YoY, while the core reading surged 0.4%, both better than anticipated. The US session will bring minor figures, June Factory Orders and the August IBD/TIPP Economic Optimism.

USD/JPY short-term technical outlook

The USD/JPY pair has traded as low as 105.83, overall maintaining a positive stance. The 4-hour chart shows that the pair continues to develop above a firmly bullish 20 SMA, while technical indicators resumed their advances within positive levels. Still, the pair remains below a bearish 100 SMA which capped the upside on Monday. Further gains are to be expected only once beyond the 106.45 area, with scope then to advance to the 107.00/10 area.

Support levels: 105.60 105.25 104.80

Resistance levels: 106.45 106.80 107.10

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