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USD/JPY Facing Crucial Resistance Near 106.50

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Aayush Jindal

Key Highlights

  • USD/JPY is facing a strong resistance near the 106.40 and 106.50 levels.
  • A major bearish trend line is in place with resistance near 106.45 on the 4-hours chart.
  • The US Initial Jobless Claims were 884K in the week ending Sep 05, 2020.
  • The US Consumer Price Index could increase 1.2% in August 2020 (YoY), up from the last 1%.

USD/JPY Technical Analysis

Earlier this month, the US Dollar made an attempt to clear the 106.50 resistance against the Japanese Yen. However, USD/JPY failed to gain strength and corrected lower.

Looking at the 4-hours chart, the pair topped near the 106.55 level on Sep 03, 2020 before it started a downside correction. There was a break below the 106.20 support level, and the 38.2% Fib retracement level of the upward move from the 105.20 low to 106.55 high.

However, the bulls were able to protect the 105.85 support and there was no major drop below the 200 simple moving average (green, 4-hours). The 50% Fib retracement level of the upward move from the 105.20 low to 106.55 high also acted as a support.

If the pair fails to stay above the 105.85 support level, there is a risk of a sharp decline. In the stated case, USD/JPY could even revisit the 105.20 support.

On the upside, the pair is facing a strong resistance near the 106.40 and 106.50 levels. There is also a major bearish trend line in place with resistance near 106.45. A successful close above the trend line and 106.50 is must for upside continuation in the coming days.

Fundamentally, the US Initial Jobless Claims figure in the week ending Sep 05, 2020 was released yesterday by the US Department of Labor. The market was looking for a decline from 881K to 846K.

The actual result was disappointing, as the US Initial Jobless Claims came in at 884K. The last reading was also revised up from 881K to 884K.

The report added:

The 4-week moving average was 970,750, a decrease of 21,750 from the previous week's revised average. The previous week's average was revised up by 750 from 991,750 to 992,500.

Overall, USD/JPY could either rally above 106.50 or continue lower towards the 105.20 support. Looking at EUR/USD, there was a strong upward move above the 1.1850 resistance. Conversely, GBP/USD faced an increase in selling pressure below 1.3000.

Upcoming Economic Releases

  • UK GDP for July 2020 (MoM) - Forecast +6.7%, versus +8.7% previous.
  • German Consumer Price Index for August 2020 (YoY) – Forecast 0%, versus 0% previous.
  • German Consumer Price Index for August 2020 (MoM) – Forecast -0.1%, versus -0.1% previous.
  • US Consumer Price Index August 2020 (MoM) – Forecast +0.3%, versus +0.6% previous.
  • US Consumer Price Index August 2020 (YoY) – Forecast +1.2%, versus +1.0% previous.
  • US Consumer Price Index Ex Food & Energy August 2020 (YoY) – Forecast +1.6%, versus +1.6% previous.
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