USD/JPY moves back above 105.00, still in the red as focus shifts to NFP

• USD/JPY witnessed some aggressive selling on Friday and dropped to 1-1/2-week lows.
• Deteriorating global risk sentiment benefitted the safe-haven JPY and exerted pressure.
• A modest pickup in the USD demand helped limit deeper losses ahead of the NFP report.

The USD/JPY pair maintained its offered tone through the first half of the European trading action, albeit has managed to rebound around 25-30 pips from 1-1/2-week lows set earlier this Friday.

The pair witnessed an intraday turnaround on the last trading day of the week and dropped around 75 pips from daily swing highs amid a strong pickup in the demand for the safe-haven Japanese yen. The impasse over the next round of the US fiscal stimulus measures dented investors’ appetite for perceived riskier assets.

The already weaker sentiment deteriorated further after the US President Donald Trump was tested positive for the highly contagious coronavirus diseases. This was evident from a steep fall in the US equity futures, which forced investors to take refuge in traditional safe-haven currencies and exerted pressure on the USD/JPY pair.

Bearish traders further took cues from a fresh leg down in the US Treasury bond yields. However, a modest pickup in the US dollar demand extended some support to the USD/JPY pair. Investors also seemed reluctant to place any aggressive bets ahead of the US monthly jobs report, which further helped limit deeper losses for the pair.

From a technical perspective, the USD/JPY pair has already confirmed a bearish breakthrough a one-week-old trading range and seems vulnerable to slide further. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and runs the risk of fizzling out quickly ahead of the 105.40-50 trading range support breakpoint.

Technical levels to watch