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  • USD/JPY on the  brink of a sell-off to complete a full round-turn of the 113 rally.
  • USD/JPY needs to hold 113.50 in a poor risk sentiment marketplace.  
  • US data on the cards  this week could be made or break time for USD/JPY.

The bulls were squeezed out overnight and the pair dropped back to the 38.2% fib down in the 113.50’s. However, it’s going to take a break of that level if we are going to see a full retracement back to 113 the figure where speculative longs pounced in on the pair back on the 27th September with targets set on the 115 handle.   Later tonight, in the US sesison, we have key data in the ADP as a possible prelude to the NFP first and we also get the ISM non-manufacturing numbers could prove to be a market mover. If risk sentiment remains fragile, that is something the yen bulls can take away from the market at least.  

Central bank divergence to keep the yen on the backfoot

However, recently, the G3 central banks’ communications on  forward  guidance have changed further and that is something which analysts at Nomura suggest will weigh on the yen. “While the BOJ is still in the early stages of guidance, the  ECB  is now considering changing its guidance further by providing more detail and the  Fed  keeps deemphasising the significance of guidance as policy is now closer to normal – These divergences still suggest EUR/JPY and  USD/JPYoutperformance is likely into year-end – Governor Kuroda’s comments on possible changes in guidance also suggest forward guidance could be used as an easing option when economic momentum weakens further.”

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet, explains that the 4 hours chart for the pair shows that the Momentum indicator retreated sharply from overbought readings, now nearing its midline, while the RSI indicator is recovering, also after correcting from extreme levels and currently at 60, rather reflecting the limited buying interest seen earlier in the day than supporting a bearish case:

“In the same chart, the 100 and 200 SMA maintain their strong upward slopes below the current level, with the 100 SMA currently at around 112.50. The pair remains on track to extend its advance toward 114.40/50, a major static resistance area.”