USD/JPY recovering with eyes on 111 handle

Currently, USD/JPY is trading at 110.91, up 0.13% on the day, having posted a daily high at 110.93 and low at 110.67.

USD/JPY is finding traction in the Tokyo open, targeting the 111 handle. The recovery from 110.50 is convincing and the dollar is firming up across the board in Asia after a poor performance overnight. Wall Street was making a come back by the close though while yields in the 10-year fell from 2.23% to 2.19%. The Fed fund futures yields were slightly firmer though, pricing a June rate hike as a 90% chance (approximately). However, the lack of inflation brings the Fed's target into scrutiny weighing on the dollar.

Casting mins back, analysts at Westpac pointed out that speculators in currency futures markets switched to a short yen/ long USD/JPY stance soon after the US election in November 2016, getting on board for higher US yields and a stronger dollar.  "These positions extended as far as net short -73k JPY by 3 January 2017 (USD/JPY 117.75), but as US yields slipped in Jan-Feb, positions were trimmed quite sharply, even extending to net long JPY positions in April as USD/JPY probed under 110."

In respect to Japan, analysts at Westpac expect growth to continue recovering and the yen is supported on the back of the Bank of Japan who has decided to leave the frequency and size of its Japanese government bond purchases in June unchanged from May.

USD/JPY levels

USDJPY: Selling rallies with a SL placed above 111.25  

Valeria Bednarik, chief analyst at FXStreet explained that from a technical point of view, the 4 hour chart shows that the price is struggling around the 61.8% retracement of the latest bullish run at 110.50. "Whilst the 100 and 200 SMAs remain well above the current level, and particularly the shortest gaining bearish strength. In the same chart, technical indicators have turned flat near their daily lows within bearish territory, also favoring a new leg south particularly on a break below the mentioned Fibonacci support."