USD/JPY stuck in a tight range, bound by higher equities

• USD/JPY holds onto gains but 106 handle under pressure.
•  The current recovery above the 106.00 level needs to extend beyond 106.40.

USD/JPY rose from 105.70 to just above 106 overnight and is currently to trading down -0.16% and in a range between 105.93 and 106.12 as markets continue to consolidate following a surprise rally in stocks on Wall Street. 

There was very little to go on overnight yet stocks rallied. The Dow Jones Industrial Average, DJIA, supported by solid gains in energy stocks, climbed a healthy 258.20 points, or 1.0%, to 26,036, while the S&P 500 added 18.78 points, or 0.65%, to 2,887.94. Meanwhile, the Nasdaq Composite index added 29.94 points, or 0.38%, to 7,856.88. Meanwhile, the US 2-year Treasury yields edged down 2bp to 1.50% while the 10-year yield ranged between 1.45% and 1.48%. "Markets are pricing 26bp of easing at the 19 September Fed meeting, and a terminal rate of 0.92% (Fed funds rate currently 2.13%)," analysts at Westpac noted.

Elsewhere, SF Fed president Daly warned of the dangers of keeping interest rates very low for a long time, saying there was no free lunch while President Trump said that the Fed “cannot “mentally” keep up with the competition – other countries”, and that it has no clue.

Hard Brexit risks increased overnight

In other news, and where the Yen is likely to be a factor depending on the outcome, the UK Prime Minister Johnson’s move to suspend Parliament for a month from 9 September to 14 October was approved by the Queen of England. 

"Means there will be limited time to debate, or for the opposition to block, a no-deal Brexit. Johnson has timed the Queen’s speech for 14 October, and it is normal practice for the House of Commons to be prorogued (suspended) in the prior weeks. This means those opposing a no-deal Brexit have only next week, when Parliament returns from its summer break on 3 September, to do so. This could include trying to bring a vote of no-confidence against Johnson,"

analysts at ANZ Bank noted. 

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair is a consolidative phase according to intraday technical readings, although in the long-term the bearish trend remains firmly in place:

"In the 4 hours chart, the pair is just below a directionless 100 SMA, while the 20 SMA keeps heading south just below the current level. The Momentum indicator keeps heading lower within negative levels, while the RSI aims modestly higher at around its mid-line, lacking enough directional strength.  The current recovery above the 106.00 level needs to extend beyond 106.40 before bulls get convinced."