USD/JPY Bears back in control despite improved sentiment overnight

• Bears taking up cheaper entry levels in USD/JPY following an overnight rally.
• On the upside, a break through 106.40 could see the advance extending toward 107.00.

USD/JPY is -0.21% in the session as traders take advantage of a higher price in USD/JPY following a rally on Wall Street amid less pessimism over trade wars. Indeed, US stocks rallied somewhat on relief that the US-China trade war didn’t escalate further. During a press conference after the conclusion of the Group of 7 meeting in France, Trump said that he thinks that China wants to make a trade deal “very badly.” and when he was asked if he would considering delaying or cancelling tariffs on China, the president said “anything’s possible.”

The Dow Jones Industrial Average, DJIA, climbed 269.93 points, or 1.1%, to 25,898.83, while the S&P 500 index added 31.27 points, or 1.1%, to 2,878.38. The Nasdaq Composite Index put on 101.97 points, or 1.3%, to 7,853.74. On Friday the Dow tumbled 623.34 points, or 2.4%, to end at 25,628.90, leaving the blue-chip gauge with a 1% weekly decline.

Elsewhere, the US-Japan trade helped sentiment, with a goal of signing a pact in September that cuts Japan’s tariffs on pork and beef and increases purchases of wheat and corn, in exchange for no change to US tariffs on Japanese cars. As for price action, the USD/JPY was 105.20 before the Trump comments, bouncing to just under 106 then later steadying around 106.10. The US 2-year treasury yields rose from 1.45% late Tokyo trade to 1.55%, while the 10-year yield rose from 1.45% to 1.54%. Both remain well below early Friday yields.

US data

US durable goods orders ex transport undershot expectations (and the previous read was revised lower). "Core capital goods ex aircraft fell for the first time since March, which all else equal isn’t a promising sign for business investment. Meanwhile, the Dallas Fed manufacturing index rebounded into positive territory for the first time in four months," analysts at ANZ Bank explained. 

USD/JPY levels

Valeria Bednarik, the Chief analyst at FXStreet explained that despite the nice comeback, the pair is still offering a bearish stance in its 4 hours chart, as it has been unable to recover beyond its 20 and 100 SMA, both heading lower and converging in the 106.10/20 price zone:

"Furthermore, technical indicators in the mentioned chart have corrected extreme oversold conditions, but stalled their recoveries just below their midlines, now gaining bearish traction. The bearish case could gain adepts on a break below the 106.00 level, while a break through 106.40 could see the advance extending toward 107.00 before sellers return."