USD/JPY extends recovery move further beyond 111.00 handle

Having dropped to 3-1/2 week lows near mid-110.00s, the USD/JPY pair staged a goodish recovery and is now building on its recovery move further beyond the 111.00 handle.

A modest rebound in the US treasury bond yields helped the US Dollar to recover some of its overnight sharp losses and seems to have prompted some short-covering from near-term oversold conditions. Traders even shrugged off a better than expected first quarter GDP print from Japan, with the US bond yield dynamics acting as an exclusive driver for the pair's near-term momentum. 

On Wednesday, a sharp slump in the US treasury bond yields, amid intensifying political turmoil in the US, triggered global risk-aversion trade and an overnight sell-off in the US equity markets boosted the Japanese Yen's safe-haven appeal, with the pair crumbling over 200-pips to fresh monthly lows.

Despite of the follow through bearish sentiment around Asian equity markets, the pair has managed to bounce off lows and seems to have found some support from expectations of Fed rate-hike action at its June meeting.

However, it remains to be seen if the current recovery is backed by any genuine buying interest or is just a technical correction amid rising political instability in the world’s largest economy.

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On the economic data front, initial weekly jobless claims data and Philly Fed Manufacturing Index are scheduled for release later during the NA session from the US. 

Technical levels to watch

Currently trading around 111.25-30 region, immediate resistance is pegged near mid-111.00s, above which a fresh bout of short-covering could lift the pair back closer to the 112.00 handle with some intermediate resistance near 111.70-75 area. 

On the flip side, 110.80 level now seems to act as immediate support and is closely followed by the very important support near mid-110.00s. A convincing break below this crucial support could accelerate the slide further towards the key 110.00 psychological mark en-route 109.70-65 horizontal support.