USD/JPY sticks to modest gains, lacks follow-through beyond mid-107.00s
- Improving risk sentiment undermines JPY’s safe-haven demand and lends some support.
- The USD bulls held on the defensive amid increasing Fed rate cut bets and capped gains.
The USD/JPY pair struggled to register any meaningful recovery and remained well within the striking distance of near six-month lows set in the previous session.
Following a two-way price action on Friday, the pair regained some positive traction at the start of a new trading week but seemed struggling to extend the momentum further beyond mid-107.00s.
Stronger global risk sentiment - supported by the latest US-China trade optimism, turned out to be one of the key factors weighing on the safe-haven Japanese Yen and providing a minor lift to the major.
However, sentiment surrounding the US Dollar remained weak in the wake of last week's dovish FOMC - showing readiness to cut interest rates to support economic growth, which capped any strong up-move.
Hence, it would be prudent to wait for a strong follow-through buying before confirming that the pair might have actually bottomed out in the near-term or positioning for any further near-term recovery move.
In absence of any major market moving economic releases on Monday, the combination of diverging forces could possibly lead to a consolidative price action amid near-term oversold conditions.
Technical outlook
As Valeria Bednarik, FXStreet's own American Chief Analyst notes – “The pair is developing below a firmly bearish 20 SMA which keeps heading lower well below the 100 and 200 SMA. The Momentum indicator heads marginally higher below its 100 line, but the RSI indicator remains directionless at 26, all of which favors further declines ahead.”
“Shorter term, and according to the 4 hours chart, the pair is bearish, now developing below sharply bearish moving averages and with technical indicators having resumed their declines well into negative ground,” after correcting oversold conditions”, she added further.