- A good recovery in USD demand helped USD / JPY gain some positive traction on Monday.
- Nerves from COVID-19 propped up the safe-haven JPY and capped any significant gains for the pair.
- A sustained move past the 100 hourly SMA and the 38.2% Fibonacci level could pave the way for further gains.
The pair USD/JPY it reversed an initial drop in the European session to levels below 110.00 and rose again closer to daily highs in the last hour, although it lacked subsequent buying. The pair was last seen trading modest intraday gains around the 110.15-20 region.
The US dollar was in demand again on the first day of a new trading week amid expectations that the Fed could be evaluating the possibility of tightening its monetary policy earlier. This, in turn, was seen as a key factor that extended some support to the USD / JPY pair.
That said, concerns about the spread of the highly contagious Delta variant of the coronavirus weighed on investor sentiment. This was evident from the prevailing climate of risk aversion, which held the Japanese yen as a safe haven and limited gains for the USD / JPY pair.
Looking at the technical picture, the recent bounce from the 109.50 area, or close to the month-long lows, stalled near a resistance marked by the 100 hourly SMA. The mentioned hurdle is pegged near the 110.25-30 region, which should act as a pivotal point for short-term traders.
Meanwhile, the mixed technical indicators on the hourly / daily charts have not supported any firm direction. This warrants some caution before placing aggressive bets pending the US CPI to be released on Tuesday and testimony from Fed Chairman Jerome Powell on Wednesday and Thursday.
From current levels, any subsequent positive movement is likely to face strong resistance near the 110.35-40 region. This coincides with the 38.2% Fibonacci level of the drop from 111.66-109.53, which if decisively cleared will be seen as a new trigger for bull traders.
The USD / JPY pair could overcome an intermediate hurdle near the 110.60 region (50% of the Fibonacci level) and aim to test the 110.80-85 resistance zone. The latter marks the 61.8% Fibonacci level, above which the scenario looks set for a move beyond 111.00.
On the other hand, the daily swing lows, around the key psychological 110.00 mark, or the 23.6% Fibonacci level, could continue to protect the immediate drop. Some subsequent selling would make the USD / JPY vulnerable to pull back and retest the 109.50 support zone.
1 hour chart
Technical levels
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