USD/JPY respects Japan’s downbeat Q2 GDP with an uptick above 106.50

• USD/JPY fails to extend Friday’s weakness while bouncing off 106.54.
• Japan’s Q2 Preliminary GDP drops below -7.6% forecast to -7.8% QoQ, marks the biggest economic contraction of the Asian nation.
• Market sentiment recovers as US House returns to session later this week.
• Sino-American tussle pushed back the trade deal review, the virus gets stronger in the second wave.

USD/JPY takes the bids near 106.62, intraday high of 106.65, as markets in Tokyo open for trading on Monday. The yen pair recently reacted to the preliminary readings of Japan’s second quarter (Q2) Gross Domestic Product (GDP). Also likely to favor the pair’s upside could be the latest shift in the market’s risk-tone.

Read: Japan GDP: Biggest contraction since data became available in 1980

Risk-on sentiment adds to the greenback woes…

Although the unclear postponement of the US-China trade deal review initially weighed on the market’ sentiment, news that the House Speaker Nancy Pelosi called on resume the session later this week renewed the risk-on mood. The reason could be traced from the American stimulus deadlock that led the policymakers to call off the house for a month during the last week. Although the Congress is less likely to push the coronavirus (COVID-19) aid package talks during this week, hopes of any hints for the same can’t be ruled out.

Even so, the fears of the pandemic and the US-China tussle restrict the market’s upbeat sentiment. Talking about the virus, the latest figures from France stayed above 3,000 for the second day while Australia’s Victoria marks the highest death toll. Further, Japan’s Tokyo registered fifth consecutive day of beyond 200 new cases while marking 260 new cases on Saturday. On the other hand, American President Donald Trump continues to tighten his grip over Beijing while recently ordering to offload TikTok. In return, the dragon nation shows readiness to retaliate, as general, if the US announces any more sanctions.

Against this backdrop, S&P 500 Futures rise over 0.25% to 3,370 whereas US 10-year Treasury yields also mark minor gains to keep 0.71% level.

Having witnessed the initial reaction of Japanese GDP, traders will wait for June month Industrial Production details ahead of the NY Empire State Manufacturing Index data. It should, however, be noted that risk catalysts will offer a clearer direction than the light calendar.

Technical analysis

Failures to cross 107.00 joins the recent break of a two-week-old support-line, now resistance, to direct USD/JPY prices to a 21-day SMA level of 106.08. However, any further downside will be curbed by the monthly low near 105.30. On the contrary, the support-turned-resistance line, near 107.10, precedes a 100-day SMA level of 107.20 to restrict the pair’s short-term upside.