USD/JPY recovers above 110.50 as DXY continues to erase yesterday’s losses

• US Dollar Index rises above 96 on Thursday.
• US  10-year T-bond yield stays near 14-month lows.
• European stocks trade mixed.  

Following the FOMC’s dovish tone in yesterday’s announcements, the greenback came under heavy selling pressure and continued to suffer  losses against its major rivals on Thursday to drag the USD/JPY pair to its lowest level since early February at 110.30. The dot plot yesterday revealed that the Fed didn’t expect any rate hikes in 2019 and only one in 2020 to weigh on the T-bond yields. With the yield on the 10-year T-bond slumping to its lowest level since January of 2018, the bearish pressure remained intact to help the pair push lower.

However, as major European currencies continue to have a difficult time staging a long-lasting rally amid Brexit uncertainty and concerns over the economic slowdown in the euro area, the greenback gained traction and recovered a large part of yesterday’s losses to allow the pair to reverse its course. At the moment, the US Dollar Index is up 0.3% on a daily basis and the USD/JPY pair is down only 8  pips on the day at 110.60.

Later in the day, weekly jobless claims and Philly Manufacturing Survey from the U.S. will be looked upon for fresh impetus. In the early trading hours of the Asian session, inflation report and Nikkei Manufacturing PMI from Japan will be released as well.

Meanwhile, major European stocks are trading mixed in the day and the S&P 500 Futures is losing 0.3% to suggest that Wall Street could start the day in the negative territory. If stock markets in the U.S. struggle to build on yesterday’s gains, the pair could struggle to extend its rebound.

Technical outlook via FXStreet chief analyst Valeria Bednarik

From a technical point of view, the movement seems corrective, as, in the 4 hours chart, the pair remains below its 100 and 200 SMA, with the largest at around 110.90, providing an immediate resistance. Technical indicators in the mentioned chart are just correcting extremely oversold conditions.  The bearish potential could ease on a break above the mentioned 110.90 level, yet renewed selling pressure below 110.30 should result in a steeper slide below the critical 110.00 figure.

Support levels: 110.30 110.00 109.65

Resistance levels: 110.90 111.20 111.45