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  • USD/JPY witnessed a “V-shaped” recovery from 111.66 to 112.00 in Asia, courtesy of an uptick in the treasury yields.
  • The recovery could be short-lived as US-China trade talks may not happen.
  • Technical charts are biased toward the bulls.

Currently, the USD/JPY pair is trading at 111.95, having clocked a session low of 111.66 in Asia on US’ decision to impose tariffs on $200 billion worth of Chinese imports.

However, the drop was quickly undone seemingly due to recovery in the 10-year treasury yield from 2.97 percent to 3 percent.

Moreover, markets were expecting the Trump administration to impose fresh tariffs. If anything, the markets could have taken heart from the fact that Trump imposed 10 percent levy as opposed to an expected tariff of 25 percent.

That said, the demand for anti-risk JPY could rise in Europe as reports are doing the rounds that new US tariffs have not gone down well with Beijing and in retaliation, it is planning to call off talks with the US.

Technically speaking, the pair looks set to test the 200-week moving average (MA) of 113.23 in the next week or two, created a bullish continuation candle last week.

Meanwhile, the hourly relative strength index has breached the falling trendline, opening doors for a re-test of Friday’s high of 112.17.

Hourly chart

Resistance: 112.17 (Fri’s high), 112.80 (July 13 high), 113.18 (July 19 high)

Support: 111.81 (5-day MA), 111.51 (10-day MA), 111.37 (50-day MA)

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