USD/JPY bounces off four-month low, is it chart driven recovery?

The Dollar-Yen pair dropped to 111.43; the lowest since November 26, before staging a quick recovery to 111.70 levels.

The rebound from four-month low contradicts the moderate losses in the treasury yields and upbeat Japanese trade balance data. The BOJ minutes offered little hawkish or dovish surprise to the markets.

Oversold conditions

That leaves us guessing as to what may have triggered the recovery in the USD/JPY pair. This appears to be a chart driven move as the RSI on the 4-hour chart is hovering into the oversold territory (well below 30.00). The hourly RSI is oversold as well.

Despite the quick recovery from the session lows, the spot is having a hard time extending gains above 111.70 as the 10-year treasury yield is down close to two basis points.

Furthermore, the data released this Wednesday morning showed Japan’s trade balance swung back into surplus in February as exports surged at an annualized 11.3% in February. Meanwhile, imports rose 1.2%. Sharp rise in the exports/trade surplus is supportive for the Japanese Yen.

USD/JPY Technical Levels

A break below 111.60 (Feb low) on a bigger timeframe - 4-hour or daily chart would signal continuation of the retreat from the December high of 118.66 and could yield a sell-off to 110.00 (psychological figure), under which a major support is seen at 108.01 (200-DMA).

On the higher side, 5-DMA level of 112.38 could offer resistance, which, if breached would shift risk in favor of a rally to 113.15 (upward sloping 100-DMA) and 113.49 (50-DMA).