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USD/JPY retraces portion of daily losses, remains below mid-112s

  • USD/JPY trades in a 50-pip range on the day.
  • US Dollar Index recovers on rising US T-bond yields.
  • US stocks record substantial gains on Tuesday.

The USD/JPY pair lost nearly 40 pips during the first half of the NA session and renewed its daily low at 112.18 before making a modest recovery. At the moment, the pair is trading at 112.35, down 0.24% on the day.

US T-bond yields dominate the DXY action

Amid a lack of fundamental catalysts that could impact the demand for the greenback, the US Dollar Index is fluctuating in accordance with the US Treasury-bond yields. After starting the day under pressure and losing as much as 1.5%, the 10-year T-bond yield turned flat at 2.374%, allowing the DXY to find support near the 93.80 mark. At the moment, the index is at 93.85, losing 0.15% on the day.

Despite the greenback weakness, however, the pair struggled to stretch its downside as the positive market sentiment in the session underpinned the demand for traditional safe-havens. Boosted by the substantial gains seen in the tech shares, major equity indexes in the U.S. gained traction on Tuesday. At the moment, the Dow Jones Industrial Average and the S&P 500 indexes are up 0.77% and 0.65% respectively.

With the Thanksgiving holiday coming up on Thursday, the trading volume is expected to remain low in the second half of the week. Although the FOMC is going to release the minutes of its November meeting on Wednesday, the odds of a December rate hike shouldn't be impacted in any way. "The FOMC minutes (Wed) will continue to allude to diverging views within the committee and is unlikely inspire much upside in US rates or the USD this week," ING analysts noted in a recent report. 

Technical levels to watch

With a decisive break below 112 (psychological level/Nov. 11 low), the pair could drop further towards 111.50/55 (200-DMA/100-DMA) and 111 (Sep. 17 low/psychological level). On the upside, resistances could be seen at 113 (50-DMA), 113.40 (20-DMA) and 114.10 (Nov. 9 high). The RSI indicator on the daily graph is moving sideways a tad below the 50 handle, suggesting a short-term neutral outlook for the pair.

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