USD/JPY bounces off 1-1/2 month lows, still weaker around mid-110.00s

The USD/JPY pair extended its recent downward trajectory and dropped to 1-1/2 month lows during early Asian session on Monday, albeit managed to recovery few pips thereafter. 

The pair remained under some selling pressure at the start of a new trading week amid escalating geopolitical tensions on N. Korea's yet another launch of an intercontinental ballistic missile. Adding to this, a strong rebound in the Japanese industrial production for June combined with the prevalent cautious environment provided an additional boost to the Japanese Yen and collaborated to the pair's retracement to the lowest level since mid-June. 

However, with investors now looking past Friday's disappointing details from the advance US Q2 GDP report, a modest US Dollar recovery helped limit further losses and assisted the pair to recover around 20-25 pips from lows to currently trade around mid-110.00s.

Today's US economic docket features the release of Chicago PMI and pending home sales data, which would now be looked upon for some fresh impetus later during NA session. In the meantime, broader market risk sentiment would remain a key determinant of the pair's movement through European trading session.

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Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: "An erratic recovery from the Asian session low of 110.31 to 110.55 on the back of a bullish price RSI divergence on the 1-hour chart suggests the sellers may have run out of steam… especially after Friday’s failed attempt to secure an end of the day close below last Monday’s Doji candle low of 110.62."

"A break above 110.67 could yield a rally to 111.11 (5-DMA) and 111.37 (10-DMA). Both the averages are still sloping downwards, thus life for the USD bulls would be difficult above the 10-DMA" he added.