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The bearish perspective around USD/JPY remains unaltered for now despite the ongoing bounce from recent 4-month lows at 104.20. Nonetheless, a move to 2020 lows around 101.20 looks unlikely for the time being as oversold conditions support the technical rebound, FXStreet’s Pablo Piovano reports.

Key quotes

“Dollar weakness and lower US yields followed the historic slump in the US economic activity in the second quarter along with the protracted deterioration in the US labour market and the unabated advance of the pandemic. If we add political jitters plus the omnipresent US-China effervescence, the continuation of the sell-off in the pair appears more than justified.”

“Despite the prevailing offered bias and the likelihood of extra pullbacks, USD/JPY is unlikely to recede to the area of 2020 lows around 101.20, at least in the short-term horizon. For this scenario to materialize it would be needed a sharp worsening of macro conditions, which looks improbable at the moment.” 

“Further out, the current oversold condition of the USD/JPY pair calls for the continuation of the technical rebound to, initially, the lower bound of the May-July range in the 106.00 neighbourhood.”