USD/JPY holds onto gains above 107.10 as US dollar strengthens

• Yen drops across the board on risk appetite, Dow Jones gains 1.55%.
• US dollar posts mixed results as euro outperforms on Monday.

The USD/JPY rose further after the beginning of the American session and printed a fresh high at 107.31. The area around 107.30 capped the upside that it pulled back, finding support at 107.10.

As of writing, USD/JPY is testing daily highs despite the move of highs in main Wall Street indexes. The Dow Jones is rising 1.65% or up 435 pips and the S&P 500 0.85%.

The pair held onto gains despite the deterioration in risk sentiment and the pullback in US yields. The greenback is posting the most significant daily gains since late June, rebounding from the three-week lows it reached on Friday at 106.63.

USD/JPY outlook

Monday’s rally in USD/JPY eased the short-term bearish outlook. It continues to move sideways on a wider perspective, unable to move significantly away from 107.00. The 20-day moving average is flat at 107.25 (current price).

“Near term, on the JPY, we think extended long positioning may become vulnerable as reflation trades gain momentum. More medium term, we project USD/JPY to remain more range-bound”, explained analysts at Citibank. They argue the prospect for sustained dovish policy from the Bank of Japan is an extra headwind JPY has to face.