• The dollar fails to break above 113.70, remains trading near three-year highs.
  • The Japanese yen weakens in a risk-on session.
  • USD/JPY might extend its rally beyond 114.00 – UOB.

US dollar’s bullish attempt seen on the early US trading session has hit resistance again at the 113.70 area, and the pair retreated to the mid-range of 113.00. The USD remains strong against a weaker yen, trading right below three-year highs at 113.80 following a 3.3% rally over the last four weeks.

The yen suffers on higher risk appetite

The Japanese yen is trading lower against its main peers with a positive market sentiment hurting safe-havens in favor of riskier assets. The world’s major stock indexes are posting significant gains on Thursday, as concerns about surging inflation and supply chain bottlenecks have taken a backseat.

On the macroeconomic domain, Japanese industrial output contracted at a 3,2% pace in August, with automotive production plunging on the back of the global chip shortage.

In the US, weekly jobless claims have dropped below the 300,000 new claims for the first time in the last 19 months while, on Wednesday, the Federal Reserve offered new hints suggesting that the official announcement of QE tapering might take place at its November’s meeting. The impact on the USD however, has been limited, with the greenback trading lower against most majors on Thursday.

USD/JPY might be about to move above 114.00 – UOB

In a bigger picture, the pair remains steady near recent highs, and, according to the FX Analysis team at UOB, a further rally should not be discarded: “On Tuesday (12 Oct, spot at 113.40), we highlighted that the impulsive surge suggests that further USD strength would not be surprising and that the next resistance is at 114.20. There is no change in our view for now even though overbought shorter-term conditions could lead to a couple of days of consolidation first. The USD strength is deemed intact as long as it does not breach 112.80 (‘strong support’ level was at 112.65 yesterday).”

Technical levels to watch