USD/JPY breaks below 111.00 despite higher US T-bond yields

• USD/JPY falls on the back of broad US dollar weakness.
• The market mood is in risk-off mode spurred by US political uncertainties and China-related issues.
• US ISM Services PMI for September is expected lower than the August reading.

On Monday, the USD/JPY reached a fresh six-day low around 110.81 but bounced off, trading at 110.96, barely down 0.05%, as the Asian session kicks in.

The market sentiment is downbeat, as witnessed by US stock market losses, between 0.9% and 2.2%. Further, safe-haven flows towards the Japanese yen, the Swiss franc, and gold weakened the greenback across the board. 

The market sentiment dented by different factors

Meanwhile, the US 10-year benchmark note rate rose by one and a half basis points (bps), finished at 1.481%, up from 1.464% Friday’s close. The greenback measured by the US Dollar Index, which tracks the performance of the US dollar against its peers, lost 0.25%, trades at 93.80, for the first time since last Friday.

US political uncertainties around the debt-ceiling and the infrastructure spending bill also weigh on investors’ confidence. The Democrats supposedly are considering scaling back the spending package to improve its odds of being approved.  Further, escalating tensions between the US and China dampened the market sentiment on China faltering to fulfill the phase one trade promises. 

On the macroeconomic front, the Japanese economic docket will feature September figures for the Tokyo CPI, which are expected unchanged.

On the US front, the Trade Balance for August and the ISM Services PMI for September could offer fresh impetus for USD/JPY traders

USD/JPY Price Forecast: Technical outlook

Daily chart

The USD/JPY recent fall is testing the 38.2% Fibo retracement from the 109.11/112.07 swing low/high. A daily close beneath that level could open the way for further losses. The first support level would be the 50% Fibo retracement at 110.60, followed by the 61.8% Fibo retracement at 110.24 and then 110.00.

On the other hand, a daily close above 111.00 would resume the upside bias, with the first target being 112.00.

The Relative Strength Index (RSI) is at 57, aiming higher, supporting the upside bias.

ADDITIONAL KEY LEVELS TO WATCH