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  • USD/JPY gradually recovers from five-day low of 108.24.
  • US dollar drops heavily amid broad risk-on sentiment, light calendar.
  • US-China tussle stays active but largely ignored as Wall Street gives a stellar performance.
  • Second-tier Japanese data, qualitative catalysts will be the key for immediate direction.

Having marked the heaviest declines since late-March, USD/JPY retraces to 108.40 during the pre-Tokyo open in Asia. The yen pair largely benefited from the US dollar weakness amid optimism in markets. Also supporting the quote could be upbeat Japanese GDP data and the policymakers’ readiness to act further to combat the coronavirus (COVID-19).

Bears cheer greenback weakness…

Despite witnessing mostly upbeat market conditions, majorly due to the surprise positive data from the US and China, the risk barometer USD/JPY dropped heavily the previous day. The reason could be traced from the traders’ rush to more returns from the riskier assets that pushed them off the US dollar.

In doing so, markets seem to ignore the US policymakers’ nearness to passing a bill that could punish Chinese diplomats involved in the human rights violation case and reignite the Sino-American tension. Additionally, Japan’s interference with the Hong Kong issue should also post risks to the Asian major.

While portraying the risk-on mood, Wall Street benchmarks flashed over 1.0% gains each with NASDAQ rising to the record highs by the end of Monday’s trading. Though, the US 10-year Treasury yields softened around 0.90% despite broad optimism.

Other than the risk catalysts, better than preliminary readings of Japan’s Q1 2020 GDP, from -0.9% to -0.6%, coupled with Japanese policymakers to stay ready with extra stimulus if needed to fight against the pandemic, also weighed the yen pair.

Looking forward, Japan’s April month Labor Cash Earnings and the preliminary readings of May month Machine Tools Orders will decorate calendar in Asia. While the Labor Cash Earnings are expected to rise from 0.1% prior to 0.6%, Machine Tool Orders dropped -48.3% in the previous month.

Technical analysis

Unless declining below 100-day EMA level of 108.10, USD/JPY bulls are less likely to relinquish control over the quote. As a result, the hopes of witnessing 110.00 on the chart remains intact.


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