USD/JPY: On the back foot below 106.00 amid risk reset

• USD/JPY keeps Friday’s losses directed towards a three-week-old support line near 105.50.
• S&P 500 Futures drops 0.15% as optimism concerning the US stimulus fade, challenges like Brexit, COVID-19 regain market attention.
• Japan’s Machinery Orders recovered in August, PPI slowed down in September.
• Off in the US, light calendar restrict the pair’s moves.

USD/JPY sellers attack 105.50, currently around 105.65 after bouncing off the intraday low of 105.60, during the initial hour of Tokyo open on Monday. The yen pair extends Friday’s losses amid mixed data and risk reset. The sellers cheered the heaviest drop in more than three weeks during the previous day as the US dollar remained bid amid broad selling on the risk positive news concerning the American coronavirus (COVID-19) stimulus.

Risk-off returns to the table…

With US House Speaker Nancy Pelosi rejecting Friday’s US President Donald Trump’s aid package proposal of $1.8 trillion, the market’s risk-on mood fades. Also weighing on the trading sentiment could be the worries that the no-deal Brexit is slowly gaining momentum while the COVID-19 resurgence in Europe is worth fearing. The European Union (EU) and the UK are still without any deals, despite being near to the October 15 deadline, while the latest figures from Europe and the UK push harder towards the national lockdowns. The respective governments have already taken hard steps like the local lockdowns, heavy fines on breaking social distancing rules and announced a large stimulus to tame the pandemic. Though, no success could be spotted so far.

At home, August month’s Machinery Orders recovered from -16.2% prior and -15.6% forecast to -15.2% YoY. However, the Producer Price Index (PPI) for September slipped below -0.5% expected and previous readings to -0.8%.

Other than the challenges to the risk and mixed data, the absence of the US Treasury traders also probes the pair’s latest performance. The US markets are partially closed with the equities open on Monday. That said, the S&P 500 Futures print mild losses around 3,468 as we write.

Looking forward, risk catalysts may offer intermediate moves to the USD/JPY prices. However, no major surprises are anticipated amid the US Columbus Day.

Technical analysis

An ascending trend line from September 21, at 105.55 now, challenges the USD/JPY bears targeting the monthly low near 104.95. On the contrary, a downward sloping resistance line from July 01, at 106.05 now, becomes a tough nut to crack for the buyers.