USD/JPY: correction fragile on the 110 handle ahead of nonfarm payrolls

Currently, USD/JPY is trading at 110.08, up 0.09% on the day, having posted a daily high at 110.16 and low at 109.92.

USD/JPY is stabilizing on the 110 handle although the minor correction to here looks to be fragile. USD/JPY broke up through the handle when buyers got behind the dollar this week on the back of possible favorable tax reforms for US companies, improved risk appetite in general with the N.Korean situation calming down in terms of immediate and exact retribution and a very positive GDP report for Q2 from the US economy.  

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However, today's PCE is a reminder to markets not to get too carried away with buying the dollar. The soft data underpinned the notion that indeed there is a lack of inflation in the US economy that the Fed will need to consider at the next FOMC meeting around where they had previously communicated in the last minutes of their previous meeting would be an appropriate month to start reducing their balance sheet - the dollar is depending upon the Fed carrying out its 'promises'. 

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USD/JPY levels

The yen is now moving away from the lower end of the breakout range between 108 and 114.00. Valeria Bednarik, chief analyst at FXStreet explained that the short term picture is still marginally positive for the pair, as technical indicators pared losses and are currently aiming to regain the upside, with the Momentum within overbought levels and the RSI around 56. 

"In the same chart, the price holds above its 100 SMA, but failed to hold above a bearish 200 SMA, now the immediate resistance around 110.25. An upward acceleration above this last should favor a retest of the mentioned high, but it will take a break above 110.94, August 16th high, to confirm a steeper recovery in the days to come," Valeria noted.