USD/JPY struggles to make a decisive recovery, trades near 110.70 as risk-off dominates

• European indices ended the day sharply lower.
• Wall Street remains under pressure amid escalating geopolitical tensions.
• The US Dollar Index tries to hold on to daily gains near 96.70.

Despite the broad-based USD strength, the USD/JPY extended its losses during the first half of the NA session and refreshed its 2-day low at 110.44. After finding an interim support at that level, the pair staged a modest recovery and was last seen trading at 110.74, where it was still down 0.4% on the day.

The markets' risk perception stays as the primary driver of the USD/JPY price action. Germany's DAX and the UK's FTSE closed the day 1.6% and 1.5% lower on Wednesday and major equity indexes in the U.S. started the day sharply lower as investors remain focused on the escalating geopolitical tensions. The U.S. Department of Treasury today announced that it would take actions against Chinese and Russian companies over illegal shipments to North Korea.

Both the Dow Jones Industrial Average and the S&P 500, which both lost more than 1% during the first trading hours of the session, were last seen down 0.8% on the day while the 10-year T-bond yield was dropping 1.25% to confirm the flight to safety.

On the other hand, today's upbeat retail sales data lifted the US Dollar Index to its highest level in more than 13 months near 97. However, falling T-bond yields forced the index to reverse its course and it was last seen near 96.70, where it was trying to hold on to small daily gains.

Technical outlook

The initial resistance for the pair could be seen at 111.10 (20-DMA/50-DMA) ahead of 111.55 (Aug. 6 high) and 112.15 (Aug. 1 high). On the downside, supports could be seen at 110.45/35 (daily low/100-DMA), 110 (psychological level) and 109.35 (200-DMA).