USD/JPY testing lower territory as US dollar struggles to stay above water

• USD/JPY recovery bets are off as the greenback faces ongoing challenges.
• The 100 level is in focus as markets bet in the downside.

USD/JPY is currently trading at 105.72 between a range of 105.71 and 106.19, testing lower territory and down0.2% at the time of writing. 

The US dollar is struggling today, with the DXY down 0.20% between a range of 93.83 the high to a low of 93.27 so far. 

The collapse of real yields binds the global foundation together, underscoring the push higher in gold, EUR, and even equities which has weighed on the greenback.

The move in yields will undermine the USD as the twin deficit surges, which is theme that is here with us for some time to come.

Following its worst month in a decade, the US dollar has been making an attempt to stabilise against its G10 peers and the majority of EM currencies, although there has been no follow-through.

The USD bears ware determined to trigger a break below the long-term upside trendline, as the rapidly rising costs of supporting the US economy as the country continues to struggle to contain the.pandemic digs in.

US elections are also coming to the fore now, with Biden's presidency a possible trigger a major outflow from US stocks in favour of other assets, including European stocks as the EU currently looks far better organised than the US.

Meanwhile, analysts at TD securities argue that the Bank of Japan is losing its credibility among investors.

Japanese officials including the BOJ and MOF banded together in a show of force on their vigilance on yen strength. Such a display is doubling down on a false sense of credibility. This is also an overreaction to a currency move that pales in comparison to most G10 pairs in recent weeks.

Staying bearish on the pair

The analysts at TD securities are eyeing lower levels to come, with the 100 psychological level in focus. 

At the same time, this early saber-rattling could be a ploy to lay early groundwork should USDJPY make a move to 100.

That is the level we think policymakers are uncomfortable with. In the meantime, we still find attractive risk/reward in USDJPY shorts, but we take profit on our TOTW book. We will look to re-establish this position however.

USD/JPY levels

Meanwhile, with the USD/JPY charting a large key day reversal on Friday, analysts at Commerzbank argue that this suggests scope for a near term recovery. 

Resistance is offered by the short term downtrend at 106.76 ahead of the 200 day moving average at 108.23.Last weeks low at 104.20 guards the 103.43/78.6% retracement, which is the last defence for the 101.18 March low.