USD/JPY Review: JPY tracks CNY, focus on 50-day MA

• USD/JPY defended 50-day MA support yesterday as CNY took a hit.
• The Chinese yuan is attempting a technical recovery today and that is likely weighing over USD/JPY.

As of writing, USD/JPY is trading at a session low of 110.95, having clocked a high of 111.25 earlier today.

The currency pair defended the all-important 50-day moving average (MA) support yesterday, tracking the losses in the Chinese yuan.

The Chinese currency remains an anchor for Asian currencies, having guided the FX markets for more than a month now. Moreover, the recent CNY devaluation by the PBOC in the wake of Sino-US trade war has forced a similar realignment in the JPY and other Asian currencies.

Consequently, a pick-up in CNY helps Asian currencies score gains against the USD while a drop in CNY yields a broad-based USD rally.  The drop from the high of 111.25 seen today could be associated with CNY’s recovery from the session low of 6.8215 per USD to 6.8034 per USD.

Focus on 50-day MA

The moving average reversed the pullbacks seen in May and June and hence is the key level to watch out for in the short-run.

A close below the 50-day MA of 110.55 would add credence to the breach of the rising trendline (from March lows) and would open the doors to a deeper drop below 110.00 (psychological level).

On the other hand, a close above 111.38 (Wednesday’s high) would validate yesterday’s bullish outside-day candle and set the pair on the path toward the recent high of 113.17.