USD/JPY Daily Forecast – Resistance At 106.00 Stays Strong

U.S. Dollar Weakness Helps Yen Gain More Ground

USD/JPY failed to settle above the 20 EMA at 106.00 as the U.S. dollar found itself under significant pressure against a broad basket of currencies. The U.S. Dollar Index gained material downside momentum and declined below the 92 level. It has recently tested lows at 91.78 and maintains solid chances to continue its downside move which would be bearish for USD/JPY.

Today, Japan’s economic reports surprised to the upside. In July, Unemployment Rate increased from 2.8% to 2.9% but remained below the analyst consensus of 3%.

Manufacturing PMI increased from 45.2 in July to 47.2 in August compared to analyst consensus of 46.6.

The U.S. will also provide its Manufacturing PMI report today. Manufacturing PMI is projected to grow from 50.9 in July to 53.6 in August.

The general negative sentiment towards the U.S. dollar will continue to impact USD/JPY trading dynamics. While Japan has entered a period of uncertainty due to health-related departure of Prime Minister Shinzo Abe, the market will likely focus on long-term prospects for U.S. interest rates.

In this light, it is especially interesting to see whether the yield of the U.S. 30-year government bonds will continue to increase, prompting speculation of Fed’s stimulus intervention. At this point, the 30-year yields have stabilized just below 1.50%.

Technical Analysis

USD/JPY did not manage to gain sufficient upside momentum and failed to get above the nearest resistance at the 20 EMA at 106.00. As a result, USD/JPY continues to trade in a range between the support at 105.30 and the resistance at 106.00.

In case USD/JPY manages to get above the resistance at 106.00, it will head towards the next resistance level at the 50 EMA at 106.30. A move above the resistance at the 50 EMA will likely lead to increased upside momentum which will push USD/JPY closer to the major resistance level at 107.00.

On the support side, USD/JPY will need to get below the nearest support at 105.30 to gain more downside momentum. In this scenario, USD/JPY will head towards the next support level at 104.70. Most likely, additional U.S. dollar weakness will be required for such a move. #USD/JPY##FX#

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