USD/JPY respects US dollar strength above all to pierce 106.00

• USD/JPY extends the latest pullback from 105.97 to keep the previous day’s gains.
• Market sentiment turns downbeat amid US-Iran fears, virus woes and Sino-American tussle.
• Hopes of stimulus, greenback’s recovery moves to favor the bulls.
• Japan’s Foreign Investment figures flash mixed results amid falling yields.

USD/JPY picks up the bids near 106.15 as markets in Tokyo open for trading on Thursday. The yen pair recently gained as global markets stretched their US dollar long positions after witnessing the greenback’s bounce off 27 month low. Also supporting the pair could be the latest weakness in risk barometers and mixed data from Japan.

Yield differentials play a role…

Although Foreign Investment in Japan Stocks surged from ¥165.5 B revised prior to
¥371 B, Foreign Bond Investment slipped to ¥-182.2 B from ¥1442.9 B. The reason could be the difference between the US and Japanese Treasury bond yields. That said, the 10-year notes from America and Tokyo currently offer 0.67% and 0.025% yields.

The pullback in yields not only affects the Japanese investment but also offers additional strength to the US dollar.

US-Iran drama joins the market-negative league…

As if the coronavirus (COVID-19) and Sino-American tension were not enough, the latest warning from US President Donald Trump that the US intends to renew nearly all sanctions on add to the sentiment-negative line. Also highlighting the fears are comments from American Secretary of State Mike Pompeo who warned China and Russia to not meddle in this matter to save Tehran as they did in the recent past.

Elsewhere, the White House Adviser Larry Kudlow cited the Republicans’ readiness to re-discuss COVID-19 stimulus package with the Democrats after House Speaker Nancy Pelosi showed the ability to cut their demands in half.

Furthermore, the global virus count crossed 22 million and the fresh wave is gaining strength in Europe while the latest data from Australia’s Victoria bucked the trend of making monthly lows.

Against this backdrop, S&P 500 Futures decline 0.30% and Japan’s Nikkei 225 index struggles around 23,075 to mark 0.16% loss as we write.

Considering the lack of major data in Asia, the pair traders will keep eyes on the risk catalysts for fresh impetus. It should also be noted that any major swing in the US dollar could fade the latest recovery moves and recall the USD/JPY bears as risk-tone sentiment remains heavy.

Technical analysis

21-day EMA near 106.20 restricts the pair’s immediate upside ahead of the falling trend line from June 05, currently around 106.90. Meanwhile, sellers will wait for a downside break of 105.30 before taking fresh entries.