Against the euro, the dollar was off its best levels, but it was against the Japanese yen where you could see clear weakness.
Risk aversion continued in the first couple of hours after Wall Street opened as crude oil prices sank on concerns over demand and stocks dropped further lower after last week’s technology-driven sell-off. However, European indices bounced off their worse levels as the markets approached the closing bell in this region, but it remained to be seen whether this was a tell-tale sign for US markets. At least the US dollar index started to ease of its best levels, after its recent short-covering rebound, as the USD/JPY sold off.
The greenback was still near its highs against the downbeat pound, which has been hit hard due to renewed concerns over Brexit. Against the euro, the dollar was off its best levels, but it was against the Japanese yen where you could see clear weakness.
The USD/JPY has been fairly stable throughout the post lockdown period. While the US dollar weakened against the racier commodity dollars, euro and pound, the lack of haven flows into Japanese yen kept the USD/JPY relatively stable. But could the USD/JPY be the next USD/XXX to break down now?
Source: TradingView.com and ThinkMarkets
The yen actually rallied sharply on the last Friday of August, causing the USD/JPY to print a big bearish engulfing candle on the daily, but then there was no further downside follow-through. Today, however, rates have broken the counter-trend move up. Could this be the start of a major down lower?
What the bears need to see next is a breakdown below short-term support at 105.60. If that happens then the next objective for them would be the liquidity below the most recent low at 105.20, where we have the support trendline of the 2020’s triangle come into play circa 105 handle.
However, if the USD/JPY breaks above the 106.50-107.00 resistance range on a daily closing basis first, then this would most likely mark the end of any short-term bearish bias.