USD/JPY Choppy Sessions Continue – Can Risk-On Market Sentiment Drive Selling?
Arslan Butt • 3 min read
The USD/JPY currency pair succeeded in extending its previous session gains, hovering almost above the mid-107.00 level, mainly due to the risk-on market sentiment triggered by the incoming positive economic data, which undermined the demand for the safe-haven Japanese yen and contributed to the currency pair gains. On the other hand, the broad-based US dollar selling bias became a key factor that capped the currency pair’s additional gains. Currently, the USD/JPY currency pair is trading at 107.59 and consolidating in the range between 107.47 and 107.78.
The USD/JPY pair managed to regain some positive traction on the first day of a new trading week, supported by the risk-on market sentiment. However, the reason for the market’s upbeat performance could be attributed to the positive employment data from the US and China’s services PMI figures. Just to recap: the American traders failed to take full benefit from the employment data for the month of June, before shutting up shop for the Independence Day holiday. Thus, the positive data that was released offered evidence that the worst of the coronavirus pandemic was likely over. In addition to this, hopes of further stimulus from the global policymakers also supported the risk sentiment.
As per the current coronavirus situation in the US, the traders seemed cautious to place any strong position, as they are all worried that the second wave of the coronavirus infections could trigger renewed lockdown measures and put the brakes on economic activity once again.
As per the latest report, almost 15 states in the US have reported a record hike in new cases of COVID-19, which has infected approximately 3 million people in the US and killed about 130,000 so far. Texas has registered record high coronavirus figures for seven consecutive day. Moreover, the fact that there has been no major progress on the virus vaccine also exerted some downside pressure on the market mood.
On the US-China front, US President Trump hasn’t yet imposed sanctions on the Chinese policymakers over the Hong Kong security law, which could ease the on-going tension between the two parties. In the meantime, the United States recently sent two aircraft carriers to the South China Sea for an exercise, which has been a challenge to the current risk-on sentiment.
On the USD front, the broad-based US dollar failed to gain any positive traction, edging lower on the day, mainly due to the lack of safe-haven demand in the market, backed by the upbeat key data from the US and China. At the same time, the investors cautiously withdrew their money from the safe-haven asset, due to optimism over the US services sector activity data due to be released later in the day. However, the losses in the US dollar kept the currency pair lower. Meanwhile, the US Dollar Index Futures that tracks the greenback against a basket of other currencies had slipped by 0.37%, to 96.940, by 12:29 AM ET (5:29 AM GMT).
Looking ahead, traders will keep their eyes on the second reading of the UK’s Construction PMI for June – expected 47 versus the previous 28.9 – which could offer additional strength to the pair. Furthermore, the US ISM Non-Manufacturing PMI for the month of June – expected 49.5 against the previous 45.4 – are key indicators to watch. However, the market is likely to be more active today, as US traders have returned to their desks after a long week, due to Friday’s Independence Day holiday.
Daily Support and Resistance
Pivot Point 107.53
On the technical side, the USD/JPY pair is likely to meet resistance at around 107.93, and a bullish breakout of this level could lead the Japanese pair towards the 108.486 mark. On the lower side, support holds at around 107.350 and 105.850. Today, let’s look towards buying trades over the 107.350 level in USD/JPY, in order to capture a quick 40/50 pips. Good luck!