USD/JPY extends sideways grind near 107.50, looks to post modest weekly gains

• USD/JPY remains on track to finish second straight week higher.
• US Dollar Index turns flat on the day near 97.20.
• Activity in Japan’s service sector recovered sharply in June.

The USD/JPY pair is moving sideways in an extremely tight 15-pip range on Friday amid thin trading conditions and a lack of significant fundamental drivers. As of writing, the pair was virtually unchanged on the day at 107.50. On a weekly basis, the pair is up 30 pips.

Japan’s service sector shows signs of life

Earlier in the day, the data from Japan showed that the Jibun Bank Services PMI rose from 26.5 in May to 45 in June. Commenting on the data, “panel comments suggest that service sector demand conditions remain very fragile and although the spread of the virus has stabilised in Japan, customer numbers were reportedly still low in June,” said Joe Hayes, Economist at the IHS Markit. “Until demand rises persistently at a strong rate, we can expect a sluggish recovery.”

Boosted by this data, the Nikkei 225 Index rose 0.66% on Friday. However, the market sentiment turned sour during the European session and major European equity indexes remain on track to close the day in the negative territory.

Meanwhile, the US Dollar Index is staying flat on the day near 97.20 on Friday, making it difficult for the pair to determine a short-term direction. 

On Thursday, the US Bureau of Labor Statistics’ monthly report revealed that Nonfarm Payrolls in the US increased by 4.8 million in June. However, the rising number of confirmed coronavirus cases in the US caused investors to remain cautious and helped the greenback stay strong against its peers.

Technical levels to watch for