USDJPY jumped aggressively on Tuesday but failed to break out of the familiar range. The pair remains stuck between the 20- and 100-daily moving averages that act as support and resistance, respectively. On the upside, the dollar is capped below the 108.00 handle that prevented the pair from a more sustainable rally last week.
Today, USDJPY rallied amid a widespread pick up in USD demand. In part, this is due to better-than-expected data out of the United States. ISM non-manufacturing PMI for June climbed to 57.1 versus 50.2 expected, indicating that the country’s economy is starting to recover. In other words, the release helped to ease the selling pressure surrounding the greenback.
On the other hand, the resurgent coronavirus concerns triggered a bearish correction in global stocks and risky assets as well. As a result, safe-haven demand picked up, capping the upside potential in the USDJPY pair. Following a rally on Wall Street, Asian stocks turned lower, with European equities following suit as recovery hopes were overshadowed by a further rise in coronavirus cases.
As such, the dollar will hardly be able to challenge the 108.00 barrier in the short term as the 100-daily moving average around 107.80 caps the upside potential at this stage. Furthermore, there is a risk of a downside correction amid the potential profit-taking at the current attractive levels. In this scenario, the prices could retreat to the 20-daily moving average that is standing on the way towards 107.00.
On the weekly timeframes, the technical picture has been gradually improving following a plunge seen one month ago. However, it is clear that the pair still lacks the recovery momentum to stage a more robust and sustainable bounce. Of note, the 20-weekly moving average caps the bullishness in the pair as well. The dollar needs to make a decisive break above the 108.00 barrier in order to retarget the 100-weekly moving average around 109.40. However, as risk sentiment remains unstable, a more aggressive ascent will hardly take place in the days to come.