USD/JPY retreats further and approaches 105.00 area

• USD/JPY reversal from 106.10 extends to 105.25 low.
• The dollar fails to take advantage of yuan's decline.
• The Japanese yen appreciates as the second COVID-19 wave spreads through Europe. 

The US dollar has failed to take advantage of the yuan’s decline following the Chinese central bank's move to cut the reserve ratio. The USD/JPY has been capped below 105.60 and extended its reversal from last week’s high at 106.10 to the lower range of 105.00.

Yuan’s drop fails to cheer the US dollar

The greenback bounced up at 105.40 on Monday’s Asian session, buoyed by the rebound of the USD/CNH. The People’s Bank of China has removed the 20% reserve requirement ratio for yuan forward settlements, a move that will lower the cost of shorting the yuan and might help to stem the recent yuan's uptrend.

In the absence of key macroeconomic events, with US and Canada celebrating Columbus Day and Thanksgiving respectively, the Japanese yen has appreciated against its main rivals. Investors' concerns about the escalation of COVID-19 infections in Europe has favoured the safe-haven JPY.

USD/JPY: Technical levels

Below today’s intraday low, at 105.25, the pair might find support at 104.90 (October 2 low) before testing September's lows at 104.00. On the upside, a potential bullish reaction might be tested by the 50-day SMA, at 105.60 area, before aiming towards 106.10 (October 8 high) and 106.50 (September 3 high).