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USD/JPY Could Resume Downtrend Below 105.50

Aayush Jindal

Aayush Jindal

Key Highlights

  • USD/JPY started an upside correction from the 105.00 support zone.
  • A significant resistance is likely forming near 106.30 on the 4-hours chart.
  • The US Initial Jobless Claims in the week ending August 15, 2020 increased from 971K to 1,106K.
  • The US Manufacturing PMI could improve from 50.9 to 51.9 in August 2020 (Preliminary).

 

USD/JPY Technical Analysis

Earlier this week, the US Dollar failed to recover above 106.50 against the Japanese Yen. As a result, USD/JPY started a sharp decline towards the 105.00 support zone.

Looking at the 4-hours chart, the pair traded as low as 105.10 and recently started an upside correction. There was a break above the 105.80 resistance level and the 100 simple moving average (red, 4-hours).

The pair even tested the 50% Fib retracement level of the downward move from the 107.05 high to 105.10 low. On the upside, there is a strong resistance forming near the 106.30 level (the last breakdown zone).

The 61.8% Fib retracement level of the downward move from the 107.05 high to 105.10 low is also near the 106.30 zone. A successful close above the 106.30 level could open the doors for a larger upward move. The next resistance is near 106.60, above which it could rally towards 107.00

Conversely, the pair could slide below the 105.50 support level to start a fresh decline. The next support is near 105.10, below which the pair might dive towards 104.50.

Fundamentally, the US Initial Jobless Claims figure in the week ending August 15, 2020 was released yesterday by the US Department of Labor. The market was looking for a drop from 963K to 925K.

The actual result was disappointing, as the US Initial Jobless Claims increased to 1,106K. The last reading was also revised up from 963K to 971K.

The report added:

The 4-week moving average was 1,175,750, a decrease of 79,000 from the previous week's revised average. The previous week's average was revised up by 2,000 from 1,252,750 to 1,254,750.

Looking at EUR/USD and GBP/USD, both pairs started a downside correction, but dips are likely to be limited in the near term.

Upcoming Economic Releases

  • Germany’s Manufacturing PMI for August 2020 (Preliminary) - Forecast 52.5, versus 51.0 previous.
  • Germany’s Services PMI for August 2020 (Preliminary) - Forecast 55.1, versus 55.6 previous.
  • Euro Zone Manufacturing PMI August 2020 (Preliminary) – Forecast 52.9, versus 51.8 previous.
  • Euro Zone Services PMI for August 2020 (Preliminary) – Forecast 54.5, versus 54.7 previous.
  • UK Manufacturing PMI for August 2020 (Preliminary) – Forecast 53.8, versus 53.3 previous.
  • UK Services PMI for August 2020 (Preliminary) – Forecast 57.0, versus 56.5 previous.
  • US Manufacturing PMI for August 2020 (Preliminary) – Forecast 51.9, versus 50.9 previous.
  • US Services PMI for August 2020 (Preliminary) – Forecast 51.0, versus 50.0 previous.