USD/JPY eases from three-week high to sub-107.00 area amid risk reset

• USD/JPY snaps four-day winning streak while taking a U-turn from 106.92.
• Market sentiment stays positive despite US stimulus deadlock, trade wars.
• The upbeat performance of Japanese PPI exerts additional downside pressure.
• A light calendar keeps risk catalysts in the driver’s seat.

USD/JPY drops to 106.75, down 0.16%, as traders in Tokyo begin their Thursday’s work. The yen pair’s latest decline stalls the previous four days’ upside as changes into the risk sentiment join upbeat factory-gate inflation data from Japan.

Risk-on mood weakens the USD, Japanese PPI pleases the pair bears…

With the global traders paying a little heed to the latest geopolitical headlines, not to forget no progress in the American Senate discussions over the coronavirus (COVID-19) aid package, market sentiment negates the early-Asian risk-off mood while recalling Wednesday's optimism. In doing so, traders ignore The Times’ headline citing the Trump administration’s show of powers, via sending stealth bombers near Taiwan, to combat the Chinese threat by showcasing nuclear weapons. Also highlighting the geopolitical threats could be the US Central Command’s tweet citing the Iranian Navy overtaking a ship called “Wila”. Furthermore, Beijing’s citing of COVID-19 traces on imported frozen poultry and the US Trade Representative Robert Lighthizer’s verbal attack on Europe also join the challenges to the risk.

On the contrary, US President Donald Trump’s optimism backs the recent improvement in the American inflation data. The same joins the market belief that the Republican leader will smash any hurdles to Senate stimulus with this executive power as he did recently.

Against this backdrop, S&P 500 Futures gain 0.10% while stocks in Japan rise 1.8% by the press time. Also portraying the risk-on mood is the US 10-year Treasury yields, currently around 0.672%, as well as the US dollar index (DXY), down 0.17% to 93.27.

Talking about the data, Japan’s July month Producer Price Index (PPI) grew past-0.3% forecast on MoM to 0.6%. Further, the yearly figures slipped less than -1.1% expected level to -0.9%.

Looking forward, traders will keep eyes on the risk catalysts for fresh impulse ahead of the US session when the weekly jobless claims could entertain the markets.

Technical analysis

50-day SMA, currently around 106.85, probes the pair’s break of a descending trend line from June 05. Hence, buyers will look for entries beyond 107.00, to be a safer side, while aiming to challenge a downward sloping trend line from March 25, at 108.07 now. On the downside, the resistance-turned-support line joins 21-day SMA to highlight 106.15 as the near-term key level to watch.