USD/JPY drops further towards 113 amid notable USD supply

• DXY hits fresh 3-1/2-week lows.
• Risk-off back in vogue?
• US data in focus.

The USD/JPY pair extends its Asian retreat into early Europe, as the selling pressure gathers steam amid renewed weakness seen around the US dollar against its main competitors.

USD/JPY: Pre-New Year light trading to persist.

The offered tone around the US dollar keeps growing bigger, now pushing USD/JPY closer towards 113 handle, as thin liquidity exaggerates the downside pressure on the buck. Moreover, the sentiment around the greenback remains undermined amid weaker Treasury yields, downbeat US macro news, and absence of Fedspeaks, which may provide the fresh trading impetus.

On the JPY-side of the story, the Yen remains buoyed by the recent series of upbeat Japanese fundamentals. FXStreet’s Chief Analyst, Valeria Bednarik noted, “Overall Household Spending rose 1.7% yearly basis in November, while in the same month, the unemployment rate fell to 2.7%. More relevant, inflation resulted higher-than-expected, with the National CPI doubling expectations in the 12 months to December, up 0.6%.”

Meanwhile, the major will take cues from the broader market sentiment and USD dynamics ahead of the US CB Consumer confidence and pending home sales data.

USD/JPY Technical View

Bednarik explained, “Despite the limited volatility, the pair retains its short-term bearish stance, with additional confirmations required at this point, as the pair continues developing above its 100 and 200 SMAs in the 4 hours chart. Technical indicators in the mentioned chart, however, have entered the negative territory, but present limited strength downward. A break below 112.90 will likely favor additional declines with scope then to extend it toward 112.00. Support levels: 112.90 112.60 112.00. Resistance levels: 113.40 113.70 114.00.”