USD/JPY capped by 111.00, holds bearish bias

• Yen ends the day up from Friday’s close but far from the highs, supported by risk aversion.
• USD/JPY technical outlook remains bearish while below 111.00.

The USD/JPY pair bottomed on Monday at 110.10, the lowest since June 28 and then rebounded to the upside, hitting a daily high at 110.92. Near the end of the session, moved off highs as US stocks failed to hold to gains. As of writing was hovering around 110.70, slightly below Friday’s close and also under key short-term technical levels.

The move lower took place during the Asian session and it was triggered by risk aversion following another sell-off of the Turkish lira that strengthened the demand for the Japanese yen. A modest recovery in equity prices and a rebound in US yields and also on the back of a stronger US dollar, pushed USD/JPY to the upside, erasing losses. The 10-year yield bottomed earlier at 2.84% (lowest since July 19) before rising to 2.890%.

Technical outlook

The recovery of the USD/JPY was capped below the 111.00 area and also under the key downtrend line that stands at 110.95. A break higher could lead to more gains.

“Ahead of the Asian opening, the pair is biased lower according to technical readings in the 4 hours chart, as it continues developing below its 100 and 200 SMA, with the shortest heading south below the larger one, as technical indicators corrected within negative levels, but lost upward strength, remaining below their midlines and keeping the risk skewed to the downside”, said Valeria Bednarik, Chief Analyst at FXStreet.