USD/JPY: fade Tokyo's minor bid within persistent selling interest?

USD/JPY opened in Tokyo with a bullish start to the week in a recovery of the bearish opening gap.

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The market has shrugged off the weekend news around N.Korea after an initial offer in early Asia down to 110.95. The bids followed taking the dollar back above the 111.00 psychological level and the price has rallied to 111.50 the high. This follows a heavily bearish scenario in last week's trade. USD/JPY dropped from 114.35 in a reversal of April's rally down to 110.23 the low.

The dollar remains on the back foot in the broader spectrum following the surge in political uncertainty. However, that wasn’t evident in other asset markets as noted by analysts at ANZ. "Fixed income gave back some of its recent safe-haven gains, and equities were higher. Commodities were firmer across the board amid the weaker USD." The analysts were also noting that the market continued to refocus on a June hike from the Fed, where pricing for a hike at that meeting firmed. "The JPY also gave back some of its gains. Clearly, there is some dislocation between the FX and asset markets, and that may provide some trading opportunities during the week ahead."

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that the weekly decline stalled around the 61.8% retracement of the latest bullish run between 108.12 and 114.36 at 110.50. "In the daily chart, the price is stuck around its 200 DMA and well below the 100 DMA, whilst technical indicator retain their bearish slopes within negative territory, indicating further declines are likely, particularly on a break below the mentioned support."

USD/JPY 4hr chart

Bednarik explained that the 4 hours chart's price is stuck at a key juncture, converging also with its 200 SMA and the 50% retracement of the mentioned rally. "In this last chart, the Momentum indicator heads north, pressuring the 100 level, but the RSI resumed its slide, heading south around 40, indicating persistent selling interest."