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USD/JPY recovery stalled ahead of the 100H-SMA near 110.10

  • USD/JPY bottomed out in the 109.90 region.
  • Virus outbreak in China favoured the yen in early trade.
  • The BoJ left the monetary policy unchanged, as expected.

After falling as low as the 109.90/85 band during early trade, USD/JPY has regained buying interest and is now hovering over the 110.00 mark as the risk-off trade seems to be losing momentum.

USD/JPY bounces off 3-day lows

The pair dropped to the area of multi-day lows earlier in the Asian trading hours after an outbreak of the Wuham coronavirus in China motivated investors to seek refuge in the safer assets like the Japanese currency, all morphing into an accelerated downside in the spot.

However, the demand for the Japanese currency lost momentum following better-than-forecasted results in the euro area and the UK economy, lending renewed oxygen to the risk-associated space and reversing the offered bias in the pair.

On another front, the Bank of Japan (BoJ) left its monetary conditions unaltered at Tuesday’s meeting. Despite the bank now sees the economy expanding more than previously estimated during this year, the inflation was revised lower for the same period.

What to look for around JPY

The January rally in USD/JPY appears well and sound, although extra gains seen quite a tough barrier around 110.30 for the time being. The pair’s upside remains sustained by the generalized risk-on sentiment, while the mega-loose stance from the BoJ also collaborates with the upbeat mood. However, upcoming US-China’s ‘Phase 2’ negotiations are predicted to be complicated to say the least, and this could lend occasional support to the yen. Also supportive of the demand for the safe haven JPY, the effervescence in the Middle East - albeit somewhat dormant at the moment - is far from abated.

USD/JPY levels to consider

As of writing the pair is down 0.10% at 110.06 and faces immediate contention at 109.88 (weekly lows Jan.21) seconded by 109.69 (23.6% Fibo of the December rally) and then 109.32 (38.2% Fibo of the December rally). On the other hand, a breakout of 110.29 (2020 high Jan.17) would open the door to 110.67 (high May 21 2019) and finally 112.40 (monthly high Apr.24 2019).

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