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  • USD/JPY sticks to modest gains, albeit struggled to make it through 50-day SMA.
  • The USD failed to preserve early gains and remained on the defensive post-US data.
  • Investors now seemed reluctant to place directional bets ahead of BoJ on Friday.

The USD/JPY pair traded with a positive bias through the early North American session, albeit has retreated around 20 pips from the daily swing high.

The pair continued with its struggle to decisively breakthrough 50-day SMA hurdle and witnessed a modest intraday pullback amid some renewed US dollar weakness. Wednesday’s dovish sounding FOMC meeting minutes, coupled sliding US Treasury bond yields prompted some USD selling at higher levels and turned out to be one of the key factors that capped the USD/JPY pair.

The USD remained on the defensive following the release of a rather unimpressive US macro releases. According to the data released this Thursday, around 2.44 million people applied for unemployment benefits during the week that ended May 16. Separately, the Philly Fed Manufacturing Index improved modestly to -43.1 in May from -56.6 previous, still fell short of -41.5 expected.

Meanwhile, concerns about worsening US-China relations overshadowed the recent optimism led by the re-opening of economies globally. Adding to this, growing fears over the second wave of coronavirus infections weighed on investors’ sentiment. The nervousness was evident from a softer mood around the global equity markets benefitted the Japanese yen’s perceived safe-haven status.

It is worth recalling that the US President Donald Trump on Wednesday once again accused China for its mishandling of the coronavirus outbreak. Moreover, the US Senate passed a bill that could block some Chinese companies from selling shares on the American stock exchanges and fueled concerns that the US-China trade deal agreed last year between the two sides could crumble.

The negative factors, to a larger extent, were negated by speculations that the Bank of Japan might introduce extraordinary policy easing measures. Hence, the key focus will remain on the unscheduled BoJ meeting on Friday, which might provide some meaningful impetus. Traders are likely to wait for a sustained breakthrough a three-day-old trading range before placing any directional bets.

Technical levels to watch