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  • Renewed trade pessimism prompted selling on Tuesday.
  • Fading safe-haven demand helped limit any further losses.
  • Powell’s speech/FOMC minutes eyed for a fresh impetus.

The USD/JPY pair reversed an early Asian session dip to sub-107.00 levels and has now turned higher for the day, recovering a part of the overnight modest slide.
The pair failed to capitalize on its goodish move up from the weekly bearish gap opening swing lows and met with some fresh supply on Tuesday in reaction to the US decision to impose visa restrictions on Chinese officials over the treatment of Muslim minorities.

Fading trade optimism exerts some pressure

The move, together with the blacklisting of Chinese firms over the same issue, threatened to derail already delicate US-China trade negotiations and triggered a fresh wave of global risk-aversion trade, which eventually benefitted the Japanese Yen’s perceived safe-haven status.
The global flight to safety was reinforced a sharp fall in the US Treasury bond yields and dragged the pair to an intraday low level of 106.81, albeit a goodish pickup in the US Dollar demand extended some support and helped limit deeper losses, at least for the time being.
The Greenback found some support after comments from the Fed Chair Jerome Powell suggested that interest rate cut in October was not a done deal. At separate events, two other FOMC members – Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari signalled their support for more policy easing.
Meanwhile, the Greenback gave up some of the overnight strong gains and did little to provide any additional boost to the major. However, some signs of stability in equity markets turned out to be one of the key factors that helped the pair to gain some traction.
It will now be interesting to see if the pair is able to build on its intraday positive move or continues facing some stiff resistance at higher levels as market participants start repositioning for Wednesday’s important release of the minutes of the latest FOMC monetary policy meeting held on September 17-18.
Heading into the key event risk, the Fed Chair Jerome Powell’s yet another public appearance might influence expectations about the US central bank’s policy outlook and produce some short-term trading opportunities.

Technical levels to watch