USD/JPY trades quietly around 110, waits for next catalyst

After testing the 110 handle during the first half of the NA session, the USD/JPY pair went into a consolidation phase and spent the last couple of hours in a tight 20-pip range. As of writing, the pair was trading at 110.12, losing 0.5%, or 57 pips, on the day.

Another USD selling wave that hit the markets after a mixed batch of data on Wednesday weighed on the pair in the second half of the day. Moreover, the bullish rally of the major equity indexes in the U.S. lost some momentum, failing to limit the losses of the pair. Although the Dow Jones Industrial Average continues to hold above the 22K mark, both the S&P 500 and Nasdaq Composite indexes are heading to a negative close while the US Dollar Index is virtually unchanged on the day at 92.75.

The first couple of macro data from the U.S., weekly initial jobless claims, and Markit services PMI, came in above the market consensus but were largely ignored. On the other hand, the non-manufacturing PMI released by the ISM showed that the sector expanded at a slower pace in July and companies hired fewer people compared to the previous month, dampening the expectations of a robust NFP reading tomorrow. Commenting on the ISM report, "in terms of tomorrow's payrolls report the ISM employment component came in at 53.6 versus 55.8 in June after the manufacturing index fell 2 points to 55.2 earlier in the week. This seems to support our view that payrolls could disappoint a little tomorrow (ING= 170, consensus = 180 versus the 222k figure last month)," said James Knightley, Chief International Economist at ING.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "...in the 4 hours chart, the price remains well below its 100 and 200 SMAs, with the shortest having accelerated below the largest, and with technical indicators holding within the bearish territory. There's a long way to the upside before calling a trend change, and seems unlikely that this would happen, even if US data surprise to the upside,  as the pair would need to close the week at least above 112.40 to have an opportunity the next one."

According to the analyst, supports could be seen at 109.90, 109.40 and 108.80 while resistances align at 110.35, 110.80 and 111.20.

• USD/JPY bearish view unchanged – UOB

Today's data from the U.S.

• US: Weekly initial claims was 240,000, a decrease of 5,000 from previous week
• US: Services Business Activity Index registered 54.7 in July, up from 54.2 in June - Markit
• US: Composite PMI Output Index rose to 54.6 in July, up from 53.9 in June
• US: Economic activity in non-manufacturing sector grew in July - ISM
• US: New orders for manufactured goods in June increased 3% to $481.1 bln