USD/JPY: Well bid above 106.00 as Tokyo resumes trading after a holiday

• USD/JPY prints three-day winning streak, trades near the one-week high flashed on Monday.
• US dollar remains on the front foot amid stimulus hopes, risk-off mood.
• Japanese traders return from an extended weekend with upbeat Trade Balance, Current Account data.
• Japan’s Eco Watchers Survey, risk catalysts remain in the spotlight.

USD/JPY takes the bids near 106.10 as Tokyo begins the week’s trading after enjoying Monday’s off due to the Mountain Day. In doing so, the pair prints a three-day winning streak while challenging the highest levels since August 03. Although risk-tone remains sluggish, the broad US dollar strength lures the pair bulls.

King Dollar dominates…

The US dollar index (DXY) extends its recovery moves from over two-year low while rising to 93.65, up 0.03%, by the press time. US President Donald Trump’s executive orders recently renewed the US dollar strength after the banning of TikTok and WeChat joined the sanctions on 11 Chinese diplomats and unlocking the unemployment claims benefits together with other helps at home. Further favoring the greenback is the US-China tussle and hopes that the much-awaited hopes of a multi-trillion American stimulus will be out soon.

China retaliated to the US moves of sanctioning their policymakers by increasing hardships for 11 American diplomats. However, the PBOC Governor struck an upbeat tone while saying, “China will continue implementing the phase-one economic and trade agreement with the United States, while measures announced to open up china's financial sector will continue.” Even so, US President Trump said that China phase one deal means “very little” to him.

Elsewhere, the coronavirus (COVID-19) woes keep dominating with Australia’s Victoria marking another record-high death toll of 331 while infections in Japan also escalate. “Japan's total coronavirus cases topped 50,000 Monday, increasing by 10,000 in just one week, as urban centers including Tokyo and Osaka continue to see high levels of infections since the central government fully lifted the nationwide state of emergency in late May,” said Japan’s Kyodo news.

Against this backdrop, S&P 500 Futures drop 0.10% to 3,350 whereas Japan’s Nikkei 225 gains 0.84% to 22,530 by the press time. However, the US 10-year Treasury yields fail to extend the previous day’s run-up while taking rounds to 0.57% as we write.

Further, Japan’s economic data flashed welcome signals as well. The Current Account for June rose well beyond ¥110 B forecast to ¥167.5B while Trade Balance - BOP Basis grew past-¥-556.8 B prior to ¥-77.3 B. On the contrary, Bank Lending slipped below 6.5% expected to 6.3% in July.

Moving on, traders will take note of Japan’s Eco Watchers Survey data for July for immediate direction. Though, major attention will be given to the risk catalysts for fresh impetus.

Technical analysis

Having successfully broken a descending trend line from July 20, at 105.85 now, the pair aims to cross 21-day SMA level near 106.20 ahead of challenging the monthly top around 106.50. Meanwhile, a downside break of the 105.85 resistance-turned-support will recall 105.30 on the chart.