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USD/JPY retakes 111 handle as US dollar gains traction

  • Bearish momentum loses strength in the NA session.  
  • DXY remains under the 93 mark.
  • US stocks point to an improved market sentiment.

After falling to its lowest level in more than 10 weeks at 110.83, the USD/JPY pair took back a portion of its daily losses in the US afternoon and rose above the 111 mark. As of writing, the pair was trading at 111.08, still losing 0.4%, or 45 pips, on the day.

DXY turns positive on solid macro data

Amid a lack of fresh fundamental catalysts, the US Dollar Index, which ended the previous week with losses for the third time in a row, extended its downtrend during the first half of the day and touched its lowest level since late September at 92.43. However, with the new home sales data coming in at its best level in 10 years in the U.S. and the 10-year US T-bond erasing its daily losses, the greenback gathered strength against its peers, pushing the DXY into the positive area. At the moment, the index is at 92.81, up 0.1% on the day.

Meanwhile, the JPY is having a difficult time finding demand as a traditional safe-haven in the session as major equity indexes in the U.S. are sticking to their modest daily gains on Monday with the Dow Jones Industrial Average and the S&P 500 indexes adding 0.15% and 0.05% respectively.

There are no scheduled data releases from Japan on Tuesday. Commenting on the pair's recent trade actions, "the holiday period lent itself to thin USD/JPY liquidity and potentially an overshoot in the downside move; we would expect some stability in the 111.00-112.00 range given conflicting factors, with the $ potentially recovering some of its losses. Japanese CPI data and 3Q capital spending (both Thu) may be a sideshow for USD/JPY this week," ING argued noted in a recent report

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "the pair is a couple of pips above the 111.00 figure, below previous November low and overall bearish according to technical readings in the 4 hours chart, as the price continues developing far below bearish 100 and 200 SMAs, as technical indicators turned lower, the Momentum entering bearish territory and the RSI currently at 31. The pair has an immediate support at 110.80, with a break below it opening doors for a steeper slide ahead toward the 110.00 level."

According to the analyst, resistances for the pair align at 111.20, 111.60 and 112.00.

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