USD/JPY refreshes seven-week top as risk-off mood favors US dollar

• USD/JPY wavers around intraday high, rises for third consecutive day.
• Retail trading restrictions for US equities, China headlines and economic fears probe the risks.
• Vaccines, stimulus and upbeat data from Japan battle the pessimism.
• Second-tier US data, risk catalysts should be watched for fresh impulse.

Following its uptick to the day’s high of 104.57, USD/JPY trades in a range between 104.43 and 104.53, currently up 0.22% intraday to 104.48, ahead of Friday’s European session. The pair takes more clues from the risk catalysts off-late than the Japanese headlines and/or data off-late.

As a result, chatters over the latest limitations levied over some of the equity stocks, due to the Gamestop saga, joins China’s warning of war with Taiwan and liquidity squeeze at home to weigh on the sentiment.

Also roiling the mood could be the fears of a global economic recession even as vaccinations are on the rise. The reason could be traced from the fears of slow immunization and a lack of remedy that tackles both virus variants, namely from the UK and South Africa.

Additionally, traders also pay a little attention to the good news as the much-awaited US stimulus package still wobbles inside the Senate, despite recent progress.

Talking about the data, the preliminary readings of Japan’s Industrial Production for December recovered from -3.5% expected to -3.5% YoY whereas Unemployment Rate also dropped below 3.0% forecast to reprint 2.9% level. Further, BOJ Summary of Opinions suggests policymakers discussed the merits of allowing long-term yields to move more widely around the bank’s target.

Against this backdrop, US stock futures and Japan’s Nikkei 225 both lose near 1.0% by press time while the US dollar index (DXY) stays bid around 90.73, up 0.21% on a day.

Moving on, a lack of major data and traders’ attention on equity news will be the key to determine near-term market direction. In a case where the US aid package rolls out of the Congress or the Gamestop-led drama stops, the USD/JPY may revisit the familiar area below the 104.00 threshold.

Technical analysis

As per FXStreet’s Ross J Burland, USD/JPY seems to fade the upside momentum as he says,

The price has begun to show signs of weakness in the bullish impulse and the W-formation’s neckline is expected to offer support as a downside target with a confluence of the 61.8% Fibonacci retracement. With that being said, the price is trading in firmly bullish short term technicals still.

Read: USD/JPY extends the upside in firmly bullish technicals