USD/JPY is under pressure. The pair broke below the key level at 106.50, which becomes a resistance now and is consolidating on the downside. Meanwhile, the descending 50-period moving average is playing a resistance role and limits the upside potential. Besides, the relative strength index is bearish below its neutrality area at 50 and lacks upward momentum. To conclude, as long as 106.50 holds on the upside, look for a further drop towards 105.40 and even 105.00 in extension.
Market Commentary:
On Thursday, US stocks pulled back, weighed down by airline, energy, commodities, and industrial shares. The Dow Jones Industrial Average slid 0.4% from its record high to 18517 snapping a winning streak that spanned the prior nine sessions. The S&P 500 fell 0.4% to 2165, and the Nasdaq Composite was down 0.3% to 5073.
European stocks were little changed with the STOXX Europe 600 edging down less than 0.1%. Germany's DAX added 0.1% while the UK's FTSE 100 was down 0.4%.
US government bonds rebounded pressing the benchmark 10-year Treasury yield to 1.563% from 1.582% in the previous session. Gold bounced 1.2% to $1331 an ounce. Silver gained 1.9% to $19.76 an ounce, halting a five-session losing streak. Meanwhile, Nymex crude oil settled down 2.2% at $44.75 a barrel.
On the economic front, the US Labor Department reported that initial jobless claims declined slightly to 253,000 in week ended July 16 (vs. 265,000 expected) from 254,000 in the previous week. The National Association of Realtors said existing home sales gained 1.1% month-on-month to an annual rate of 5.57 million units in June (vs. 5.48 million units expected), the highest level in 9-1/2 years.
As expected, the European Central Bank decided to hold interest rates steady. ECB President Mario Draghi said the central bank is ready to act if necessary but it needs more data before considering further action. The euro was little changed and closed 0.1% higher at 1.1023.
The Japanese yen surged against the US dollar yesterday after BBC Radio 4 broadcast an interview with Bank of Japan Governor Haruhiko Kuroda, in which the central banker played down the idea of "helicopter money" - direct cash injection to businesses and consumers. USD/JPY dived swiftly to 105.41 from the levels around 106.80. BBC later made a clarification saying the interview was conducted in mid-June. USD/JPY eventually settled at 105.80, down 1.0% on the day.
At the same time, GBP/USD gained 0.2% to 1.3232. As a result, the ICE Dollar Index declined 0.2% to 97.00.
Recommendations:
The pair is trading below its pivot point. It is likely to trade in a lower range as long as it remains below the pivot point. Short positions are recommended with the first target at 105.40. A break below this target will move the pair further downwards to 105 The pivot point stands at 106.50. In case the price moves in the opposite direction and bounces back from the support level, it will move above its pivot point. It is likely to move further to the upside. According to that scenario, long positions are recommended with the first target at 106.80 and the second one, at 107.45.
Resistance levels: 106.80, 107.45, 108
Support levels: 105.40, 105.00, 104.60