USD/JPY - ‘Buy-the-dip’ mentality prevails?

The Dollar-Yen pair hit a session low of 109.38 yesterday before recovering to near 110.00 levels. Once again, the ‘North Korea’ dip in the pair has proven to be short lived.

Markets betting no imminent conflict after North Korea test

‘Buy-the-dip’ mentality is likely to prevail in the USD/JPY and risk assets as investors believe the geopolitical tensions are unlikely to escalate further. Moreover, previous escalations have had only temporary impact on the markets. 

Hence, it is not surprising to see that the USD/JPY has stabilized around 109.70. Nevertheless, the spot still trades well below Friday’s close of 110.23. Attempts to retake 110.00 have been thwarted by signs of weakness the S&P 500 futures [currently down 6 points or 0.26%]. Elsewhere, the curve between the 10-year Treasury yield and the 2-year Treasury yield remains dead flat at 82 basis points. 

South Korea’s Kospi is showing signs of life this Tuesday morning. The index could snap three-day decline, thus helping USD/JPY keep the bid tone. 

USD/JPY Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, “From a technical point of view, the pair settled below the 23.6% retracement of its July/August decline at 109.75, from where the pair was rejected for most of the last two sessions. Additionally, the 4 hours chart shows that the price is well below a bearish 200 SMA and stuck around a horizontal 100 SMA, while technical indicators lost downward strength, but remain within negative territory, overall keeping the risk towards the downside, moreover if equities remain under pressure during the upcoming Asian session.