Yen rebounds on dollar weakness

The Japanese yen has posted sharp gains in the Tuesday session. Currently, USD/JPY is trading at 104.60, down 0.58% on the day.

Yen punches back in 104 territory

Has the pendulum changed for the Japanese yen? The currency has registered gains for a third straight day, which we haven’t seen since mid-December. This follows 10 successive winning sessions for the US dollar, which posted gains of 1.8% during that time. On Friday, USD/JPY touched a high of 105.76, its highest level since mid-October. The dollar appeared poised to break into 106 territory, but the trend reversed after the release of an anemic US nonfarm payrolls report, which showed that the economy created just 49 thousand new jobs in January. The yen has rebounded strongly on Tuesday and has broken below the 105 line.

Japanese data was a mixed bag on Tuesday. Average Cash Earnings, which measures wage growth, came in at -3.2% in December, its ninth consecutive decline. This points to a prolonged decline in consumer spending, which is hampering economic growth. The lack of spending is a major reason that Japan’s GDP is projected to decline in the first quarter of 2021. Japanese businesses have steeply cut wages, which has helped keep a lid on the unemployment rate at around 3 percent, despite the economic downturn.

There was better news on the manufacturing front, as Machine Tool Orders posted a third successive gain, with a read of 9.7%. The indicator had been in a terrible slump, posting consecutive declines for a period of 24 months.

After the dismal nonfarm payrolls, US job numbers were in positive territory on Tuesday. JOLTS Job Openings accelerated in December, rising from 6.53 million to 6.65 million. Still, the upswing was not enough to boost the US dollar, which is lower against the G-10 currencies on Tuesday.

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USD/JPY Technical Analysis

• With the yen showing strong gains, USD/JPY is testing support at 104.74. Below, we find support at 104.10
• There is resistance at 105.90, followed by resistance at 106.42
• The 100-day moving average (MA) is under pressure at 104.43. A daily close below this line is a bearish technical signal

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