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  • USD/JPY dropped to two-week lows amid the emergence of some fresh USD selling.
  • Fading safe-haven demand undermined the JPY and helped limit any deeper losses.
  • A sustained break below the 105.00 mark will pave the way for additional weakness.

The USD selling bias picked up pace during the early North American session and pushed the USD/JPY pair to near two-week lows, around the 105.15 region in the last hour.

The US dollar remained depressed on the back of fading hopes over additional US fiscal stimulus measures and the US political uncertainty ahead of the upcoming US Presidential election on November 3. Adding to this, a weaker tone surrounding the US Treasury bond yields further undermined the greenback and exerted some additional downward pressure on the USD/JPY pair.

However, a positive opening in the US equity markets dented demand for traditional safe-haven assets, including the Japanese yen. The upbeat market mood, in turn, was seen as the only factors that helped limit deeper losses for the USD/JPY pair, at least for the time being. This makes it prudent to wait for some follow-through selling before placing any aggressive bearish bets.

On the economic data front, the Producer Price Index (PPI) in the US ticked higher to 0.4% MoM in September from 0.3% recorded in the previous month. On a yearly basis, the PPI rose to 0.4% from -0.2% and came in higher than the market expectation of 0.2%. The data, however, did little to impress bullish traders or provide any meaningful impetus to the USD/JPY pair.

Meanwhile, Richmond Federal Reserve President Thomas Barkin reiterated that the US Federal Reserve will aim to keep rates low until they see moderate overshoots of inflation. Separately, Federal Reserve’s Vice Chairman Richard Clarida said that the Fed is committed to using its full range of tools to support the economic recovery and that it would perhaps take another year before the US GDP reaches the pre-pandemic peak.

It will now be interesting to see if the USD/JPY pair is able to find any support at lower levels or breakthrough the key 105.00 psychological mark. Some follow-through weakness below monthly swing lows, around the 104.94 level will be seen as a fresh trigger for bearish traders and pave the way for a slide back towards challenging the 104.00 mark.

Technical levels to watch