USD/JPY finds resistance below 109.70 and retreats as Wall Street moves off highs

• USD extends gains but retreats vs JPY.
• US Senate leaders announce bipartisan deal plan to avoid shutdown. 

The USD/JPY pair reached a fresh high at 109.67 and then pulled back, falling below 109.30. At the moment of writing, was trading at 109.40. 

The US peaked during a rally in Wall Street and amid rising US yields. During the last hours, equity prices in the US moved off highs and strengthened the Japanese yen. 

Despite retreating against the yen, the greenback rose further versus its main rivals, including commodity currencies. It received support after Senate Republican Leader Mitch McConnell announced a bipartisan deal on a 2-year budget pact. The deal could avert Friday’s government shutdown and includes a $300 billion more for domestic programs and defense. 

Outlook 

The USD/JPY continues to be limited to the upside, technically by the 109.70 area and form a fundamental perspective, by risk aversion. Today the Dow Jones was rising but Monday’s sell-off raised concerns about the prospect of more gains. Equity prices have at the moment a strong negative correlation with the yen. 

From a technical perspective, the pair remains in a wide consolidate range between 108.25/50 and 110.25. A break lower and a slide under 108.10/20 (April and August lows) would clear the way to more losses and a potential acceleration. To the upside, a daily close significantly above 110.00 (20-day SMA) could remove the short-term bearish pressure and point to more gains.