USD/JPY holds to modest gains but drops back below 109.00

• Yen correct lower across the bard as risk aversion eases.
• USD/JPY post modest gains but technical outlook still negative.

The USD/JPY pair peaked during the American session at 109.06 but it was unable to hold on top of 109.00 and retreat to 108.80. Near the end of the session, it was hovering around 108.90, up 30 pips for the day.

Risk aversion eased across financial markets weakened the demand for safe-haven currencies like the yen that was among the worst performers. US data had no impact on markets. On Thursday, US personal income and spending numbers are due ahead of Friday’s NFP. Still, the Italian political crisis is likely to play a key role.

Today’s gains in USD/JPY did not remove the bearish tone. The decline of the yen in the market looks corrective so far. Also, the US Dollar pulled back in the market. The DXY posted the first loss after rising during three days in-a-row.

USD/JPY Technical outlook

The pair failed to recover key technical levels like 109.00 so it continues to face downside pressure. According to Valeria Bednarik, Chief Analysts at FXStreet the ongoing advance seems to be losing steam, as seen in technical readings in the 4 hours chart, with the pair holding below its 100 and 200 SMA. She also notes that technical indicators lost upward momentum in negative territory, after correcting oversold readings.

“The 38.2% retracement of the mentioned decline stands at 109.35, with gains beyond it painting a more encouraging bullish picture”, added Bednarik.