The USD/JPY cross recovered from an intraday drop to a roughly three-week low and was last seen lingering towards the high end of its daily trading band, around 113.75-80.
Following a moderate positive gap start, the USD/JPY duo saw some selling and fell to sub-113.00 marks during the early hours of trading on the first day of the new week.
However, a confluence of factors aided the pair in attracting some purchasing at lower levels, allowing them to recoup some of Friday’s big losses.
Exaggerated Reaction To The Strain
Investors thought the monetary markets’ reaction to the revelation of the omicron coronavirus strain on Friday was exaggerated. This, in turn, resulted in a favorable shift in global risk attitudes, undermining the relatively secure Japanese Yen and acting as a boost for the USD/JPY cross.
Bulls got fresh cues from rising US Treasury note rates, which helped reinvigorate US Dollar’s momentum and provided more support to the USD/JPY pair.
However, concerns about the possible economic consequences of the novel vaccine-resistant coronavirus strain may deter traders from making strong optimistic wagers.
Furthermore, the new developments in the coronavirus drama may have caused investors to lower their expectations for the Fed to tighten policy sooner rather than later.
This might keep a lid on any wild advance for the USD and help to limit the USD/JPY pair, raising the stakes for bulls even higher.
The publication of the US Pending Home Sales data is scheduled for the next day, although it is unlikely to give any substantial momentum.
Traders may, however, take cues from the larger market risk attitude. This, together with US bond rates, may impact USD price patterns and offer some momentum to the USD/JPY pair.
USD/JPY Overview Of The Technical Aspects
USD/JPY CHART Source: Tradingview.com
While the 55-day moving average and the recent November low at 112.85/73 remain in play, general upward pressure should continue in play. The July high is 111.66 points lower.
Above 115.51/60, the resistance line from 1998 to 2021 is at 117.56, and the downtrend from 1975 is at 119.41.
On the other hand, the downside sees a solid RSI line and the 50-DMA level at 113.15 as immediate obstacles to overcome.
Even if the USD/JPY bidders breach the 113.15 DMA support, the March 2021 resistance-turned-support line, near 112.80, would come before September’s top of 112.00, posing a challenge to the pair’s further deterioration.
Alternatively, a clean upward breach of the immediate resistance line, which was previously supported around 114.10, will lead USD/JPY bulls towards the previous month’s high at 114.70.
If the unit buyers maintain control over 114.40, the 115.00 level and the latest high at 115.50 might be used to test the gains.
The USD/JPY is still under pressure at around a 13-day low, erasing an early Asian rally ahead of Monday’s European session.
Sellers of the Yen pair welcomed the previous day’s widespread risk-off attitude by breaking a rising support line from late September, which is now resistance around 114.00.