Today, in the early European trading session, the USD/JPY currency pair failed to continue the early gains of the Asian session, dropping below the mid-108.00 level. The move was due to the risk-off market sentiment, backed by the fears of the second wave of the coronavirus, which eventually underpinned the safe-haven Japanese yen and contributed to a USD/JPY bearish bias.

The Japanese yen gains could also be associated with the upbeat Japanese data. Besides this, the bullish sentiment surrounding the broad-based US dollar helped the pair to limit any deeper losses. At the press time, the USD/JPY currency pair is currently trading at 107.48 and consolidating in the range between 107.42 and 107.71.

On the data front, Japan’s Trade Balance for the month of May marked a decline in the previous ¥-966.5 B deficit, with the ¥-556.8 B figures. Furthermore, the Current Account balance also surged earlier, to ¥1088.2 B, with a forecast of ¥1176.8 B in May, but Bank Lending for June slipped below 7.2%, against the expected 6.2% YoY. Nevertheless, the worries over the resurgence of the Covid-19 virus exerted downside pressure on the risk sentiment, underpinning the safe-haven Japanese yen. 

As per the latest report, almost 11.8 million COVID-19 cases were reported globally as of July 8, whereby the US coronavirus cases have increased to over 3 million in total so far. Cases in Texas rose by more than 10,000 in just one day, whereas Tokyo reported an increase of over 100 cases for the sixth day in a row.

The risk-off market sentiment was further bolstered by the announcement that Australia would re-impose lockdown restrictions in Melbourne. The possibility of a renewed lockdown depressed prospects for a sharp V-shaped global economic recovery, keeping investors cautious. In the meantime, Australian Prime Minister (PM) Scott Morrison hinted at further restrictions on travel, and while talking about his concerns over the Hong Kong issue, he said that the Australian government was very active in providing shelter to citizens of the former British territory, and this also favored the risk-off mood. As we know, the risk-off sentiment triggers buying in the Japanese yen, which ultimately drags the USD/JPY pair lower. 

Apart from the virus woes, the US-China dispute remains on the cards, as the US Secretary of State Mike Pompeo recently imposed visa restrictions for some Chinese officials over the Tibet saga. The dragon nation kept its strong stand against the Americans and the UK, concerning the ban on Huawei and its fight against the Hong Kong security laws.

On the USD front, the broad-based US dollar edged higher in early European trade on the day, as the safe-haven currency remained in demand, mainly due to concerns about the mounting number of coronavirus cases. However, the gains in the US dollar kept a lid on any additional losses in the USD/JPY.

Daily Support and Resistance

S1 106.69

S2 107.12

S3 107.34

Pivot Point 107.56

R1 107.78

R2 108

R3 108.44

The USD/JPY pair is testing the double top pattern at a 107.828 resistance, while the support level holds at 107.280. A bullish breakout of 107.828 could lead the USD/JPY pair towards the next resistance area of 108. The 50 EMA suggests a bullish bias, along with MACD and RSI. Let’s look for buying trades over 107.820 and selling below the same level today. Good luck!