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USD/JPY stuck in tight range below 112 despite broad USD strength

  • US Dollar Index rallies to 10-day highs above 96.50.
  • The modest drop in US T-bond yields helps JPY stay resilient.
  • Wall Street looks to open modestly higher.

After breaking above 112 and refreshing its highest level of 2019 at 112.08, the USD/JPY pair lost its traction and erased a small part of last week's gains. As of writing, the pair is trading at 111.85, losing 0.05% on a daily basis. However, the fact that the pair still sits around 50 pips above the 200-DMA suggests that buyers are likely to continue to control the price action and today's drop is a technical correction of last week's rally.

The US Dollar Index, which started the week with a bearish gap following President Trump's comments on USD strength and criticism of the Fed's policy over the weekend, rose sharply on Monday and was last seen adding 0.25% on the day at 96.68. Despite the USD strength, however, a 0.35% drop witnessed in the 10-year T-bond yield today caps the pair's gains.

Nevertheless, the S&P 500 Futures is up 0.3% on the day and pointing to a positive start in Wall Street. If major equity indexes in the U.S. gain traction on Monday, the pair could start climbing higher and target a fresh 2019 high. Also in the NA session, ISM-NY Business Conditions Index and construction spending data will be looked upon for fresh impetus.

Technical outlook by FXStreet Chief Analyst Valeria Bednarik

The greenback is recovering the ground lost overnight against most major rivals, yet the USD/JPY pair remains mute around 110.80. According to the 4 hours chart, the pair is still bullish as technical indicators pared their declines well into positive ground and after correcting extreme overbought conditions, as it develops above bullish moving averages, with the 100 SMA currently at around 110.70. The upcoming direction will depend on US government bond yields and equities behavior, with the risk skewed to the upside for the upcoming session.

Support levels: 111.65 111.30 111.00

Resistance levels: 112.20 112.50 112.90