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USD/JPY Extends Losses, Recovery Could Face Hurdles

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Aayush Jindal

Key Highlights

  • USD/JPY extended its decline below the 103.50 support.
  • A major bearish trend line is forming with resistance near 103.80 on the 4-hours chart.
  • The US Initial Jobless Claims in the week ending Jan 16, 2021 declined from 926K to 900K.
  • The US Manufacturing PMI could decline from 57.1 to 56.5 in Jan 2021 (Preliminary).

USD/JPY Technical Analysis

After struggling to clear the 104.50 zone, the US Dollar started a fresh decline. USD/JPY broke the 104.00 and 103.80 support levels to move into a short-term bearish zone.

Looking at the 4-hours chart, the pair traded below the 103.50 support level. It even broke the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours).

More importantly, the pair traded below the 50% Fib retracement level of the upward move from the 102.59 low (formed on 6th Jan 2021) to 104.39 high. There is also a major bearish trend line forming with resistance near 103.80 on the same chart.

On the downside, the 103.00 level is a strong support. If there are more downsides, the pair may even decline below the 102.59 low. Conversely, the pair is likely to face a lot of hurdles near 103.70 and 103.80 levels if there is a recovery in the near term.

Fundamentally, the US Initial Jobless Claims figure in the week ending Jan 16, 2021 was released by the US Department of Labor. The market was looking for a decline from 965K to 910K.

The actual result was better than the forecast, as the US Initial Jobless Claims declined to 910K. The last reading was revised down from 965K to 926K.

The report added:

The 4-week moving average was 848,000, an increase of 23,500 from the previous week's revised average. The previous week's average was revised down by 9,750 from 834,250 to 824,500.

Looking at EUR/USD, the pair started a decent recovery after forming a support base above 1.2100. Besides, GBP/USD was able to climb above the main 1.3700 resistance zone.

Economic Releases

  • Germany’s Manufacturing PMI Jan 2021 (Preliminary) - Forecast 57.5, versus 58.3 previous.
  • Germany’s Services PMI Jan 2021 (Preliminary) - Forecast 45.5, versus 47.0 previous.
  • Euro Zone Manufacturing PMI Jan 2021 (Preliminary) – Forecast 54.6, versus 55.2 previous.
  • Euro Zone Services PMI Jan 2021 (Preliminary) – Forecast 45.0, versus 46.4 previous.
  • UK Manufacturing PMI Jan 2021 (Preliminary) – Forecast 54.0, versus 57.5 previous.
  • UK Services PMI Jan 2021 (Preliminary) – Forecast 45.0, versus 49.4 previous.
  • US Manufacturing PMI Jan 2021 (Preliminary) – Forecast 56.5, versus 57.1 previous.
  • US Services PMI for Jan 2021 (Preliminary) – Forecast 53.8, versus 54.8 previous.
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