USD/JPY surrenders majority of its early gains to 113.00 handle

The USD/JPY pair surrendered majority of its early gains and has now retreated around 45-pips from session tops.

After briefly testing levels beyond the 113.00 handle, the pair slipped back to 112.60 level despite of persistent US Dollar buying interest. The pair's fall over the past hour or so lacked any fresh fundamental trigger and hence, could be solely attributed to a modest retracement in the US Treasury bond yields. 

It would now be interesting to see if the current retracement is seen as an opportunity to initiate fresh long positions amid growing optimism over additional Fed rate hike move in 2017 and the tax reform plans proposed by the Trump’s administration.

Moreover, the prevalent risk-on environment, which tends to drive flows away from traditional safe-haven currencies, including the Japanese Yen, might also help limit deeper losses, at least for the time being.

On the economic data front, the release of ISM manufacturing PMI for September, followed by speech by Dallas Fed President Robert Kaplan would now be looked upon for some fresh impetus. 

   •  USD/JPY bullish, on its way to 113.80? – UOB

Technical levels to watch

Weakness below 112.45 level could get extended towards the very important 200-day SMA near the 112.00 handle with some intermediate support near 112.20 level.

On the flip side, any up-move back above 112.80 level might continue to confront fresh supply near the 113.00 handle, above which the pair is likely to accelerate the up-move towards 113.20-25 supply zone.