USD/JPY recovers early lost ground, retakes 109.00 handle

   •  Bearish pressure eases despite the risk-off environment. 
   •  A modest rebound in equities prompts short-covering.

The USD/JPY pair reversed early losses to one-week lows and might now be headed back towards the top end of its daily trading range. 

The pair on Monday sold off to the 109.00, falling over 125-pips from tops despite a strong follow-through US Dollar buying interest, and was being weighed down by global flight to safety. The ongoing turbulence in equity markets underpinned the Japanese Yen's safe-haven appeal through the Asian session on Tuesday and dragged the pair to an intraday low level of 108.46. 

The selling pressure now seems to have abated, at least for the time being, with a bout of short-covering helping the pair to bounce back towards the 109.00 handle. The recovery move, however, lacked any obvious catalyst and hence, it would be prudent to wait for subsequent up-move before positioning for any additional gains. 

With a relatively thin US economic docket, lacking any major market-moving economic releases, broader market risk sentiment might continue to act as an exclusive driver of the pair's momentum on Tuesday.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: “The RSI on the 1-hour chart is rising from the oversold territory. However, the upticks to 109.00 and above could be short-lived as the RSI on the 4-hour and daily time frame is trending lower in favor of the bears. Also, the 5-MA and 10-MA on 1-hour and 4-hour carry a strong bearish bias.”

“Hence, the spot looks set to test long-term rising trendline support of 108.00. Further losses cannot be ruled out if the risk aversion worsens” he adds further.