• USD/JPY keeps the corrective decline from monthly highs intact.
  • The US dollar clings to recovery gains, but Treasury yields retreat.
  • Rejection at the growing resistance of the channel requires a test of the 50 DMA support.

USD/JPY keeps its corrective downside intact for the second day in a row on Wednesday, as bears take advantage of lower Treasury yields.

Looming recession risks, expectations of aggressive Fed tightening, and the energy crisis in China and Europe are fueling risk flows into safe-haven US bonds, in turn driving yields down the curve.

Broad risk aversion is also helping the dollar recoup some of the lost ground, but has little to no positive impact on the major as it reverses from monthly highs of 137.70. The greenback clings to gains from the overnight recovery as investors reassess hawkish Fed expectations following the release of weak S&P Global U.S. corporate PMIs and new home sales .

Meanwhile, the yen could be supported by Japanese Prime Minister Fumio Kishida’s announcement of a relaxation of covid border controls from September 7. Hole Symposium from August 25 to 27.

From a short-term technical perspective, the bears remained in control after the bulls failed to breach the upside trendline resistance at 137.71 on Tuesday.

Note that the pair went through a three-week ascending channel formation. The rejection of channel resistance has reignited sellers’ interest, with sellers now looking to test the slightly bullish support at the daily moving average (DMA) at 50 at 135.50.

The next stop for the bears is seen at the horizontal 21 DMA at 134.59. The 14-day Relative Strength Index (RSI) is falling towards the midline, justifying the latest decline.

USD/JPY: daily chart

The daily close above trendline upside resistance now at 137.90 will confirm an uptrend channel, fueling a fresh uptrend towards the July 21 highs at 138.87.

Higher all eyes will be on the 139.00 barrier as bulls march towards 139.39 multi-year highs.

USD/JPY: additional levels to consider