USD/JPY: Yen tracks Yuan higher, drops to 111.00

• Yuan’s advance and flattening US yield curve sends USD/JPY lower.
• Lacks impetus amid holiday-thinned trading and no macro news.

Having consolidated near 111.35 earlier in Asia, the USD/JPY pair came under aggressive selling pressure and quickly eroded 30 pips to breach the 111.00 support area on China open.  However, the pair managed to regain the last, as holiday-thinned markets lack any directional impetus.

The spot extended Friday’s reversal from two-week tops of 111.50, as the JPY bulls recovered some ground after the Chinese Yuan hit fresh two-and-a-half week highs versus the US dollar. The Chinese currency was lifted by PBOC’s re-introduction of a “counter-cyclical factor” in its daily fixing to support the currency.

The drop in the USD/JPY pair can be also attributed to broad-based US dollar weakness amid flattening US yield curve and dovish comments from the Fed Chair Powell at the Jackson Hole Symposium.

In the day ahead, in absence of fresh fundamental catalysts, the spot will continue to get influenced by the broader market sentiment and US dollar price-action.

USD/JPY Technical Levels

According to LMAX Exchange Research Desk, “Rallies continue to be very well capped, with the medium-term outlook still favoring lower tops and lower lows. Look for a daily close back below 110.00 to strengthen the bearish outlook, opening the door for the start to a move back down towards 108.00 which guards against the 104.60 area 2018 low.”

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