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  • USD/JPY remained bearish in the whole week but ended with a mild pullback.
  • US economic outlook is positive, but recovery is slower than expected.
  • New virus strains can spread in the US as well.
  • The 20 and 200 SMAs are capping further gains.

The USD/JPY analysis remained bearish during the entire week despite the US economic recovery. However, the pair found little traction and managed to close the week with +0.37% above the 110.00 level on Friday.

Ask anyone, and they’ll agree that US economic activity is picking up with businesses enjoying a much-needed post-pandemic recovery. Airports are full, and restaurants are booked well in advance. The Federal Reserve acknowledges this resurgence in demand. Based on the last central bank meeting minutes, more and more policymakers believe that asset purchases should be reduced earlier than expected.

However, the USD/JPY pair fell below 110.00 as US stocks, and US Treasury yields fell. The latest data suggests that the recovery could be weaker than anticipated and, when financial support expires for additional unemployment in September, demand could slow down.

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Some will argue that allowing these benefits to expire will help address labor shortages and allow some businesses to regain full capacity. Although the American Economic Review research clearly shows that spending will decline further in households affected by the loss of income when additional unemployment benefits are eliminated.

Amid the unexpected spike in jobless claims, declining service sector activity, and growing concerns about the Delta variant, investors are concerned that even as the Fed considers reducing asset purchases, the real change will be months away.

Meanwhile, outbreaks in Asia, South Africa and Australia, and the removal of masks in the United States, fuel concerns about a similar resurgence of the virus in the United States. Thus, we need a series of positive data for US assets and the Dollar to resume their advance.

Consumer Price Index will be released on Tuesday, but given how the Fed has downplayed price pressures, a stronger CPI may not inspire much volatility. On the other hand, Thursday’s Empire and Philadelphia Fed polls and Friday’s retail sales reports may provide impetus to the market.

USD/JPY technical analysis: Moving averages to play

Although the USD/JPY declined sharply below the 110.00 level, it ended up the week with a mild pullback towards 200-SMA and 20-SMA on the 4-hour chart. The volume doesn’t look promising for the bulls. However, we have to find the sentiment on Monday to determine the next price leg.

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As we saw a broad fall in the Greenback this week, we can expect an upside correction in the coming week.

4-hour chart of USD/JPY
4-hour chart of USD/JPY

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