USD/JPY accelerates its recovery to hit session highs at 111.50 area

• The dollar bounces up from 110.80 to approach multi-month highs at 112.05. 
• The greenback appreciates moderately with all eyes on Friday's NFP data.
• USD/JPY remains biased higher while above 110.83/75 – Credit Suisse.

The greenback is bouncing up against its main peers on Tuesday, buoyed by a rebound of US T-Bond yields amid a moderately positive market mood. The USD/JPY has extended its rebound from 110.80 lows on Monday to session highs at 111.55 so far.

The US dollar picks up with all eyes on US labor data

The dollar is shrugging off the previous two days’ weakness to firm up and approach the multi-month highs reached last week. The US Dollar Index has turned higher on Tuesday following a three-day reversal, bouncing up from 93.65 lows to return towards the 94.00 area, nearing one-year highs at 94.50. The market, however, remains cautious ahead of the release of Friday’s Payrolls report, which is expected to clarify the Federal Reserve’s next step.

On the macroeconomic front, the US trade deficit surged to a record high in August, with a $73.3 billion shortfall. The market had anticipated a milder increment to $70.5 Billion, after of $70.3 Billion trading gap in July, upwardly revised from the $70.1 B. previously estimated.

Beyond that, services activity data accelerated in September, with the US ISM non-manufacturing PMI ticking up to 61.9 from 61.7 in the previous month. The improvement in the services sector suggests a certain normalization of the economic activity, although the ongoing shortage of raw materials is pushing prices higher and weighing on the employment component.

USD/JPY: Above 110.83/73, the pair is likely to retest 112.23/40 – Credit Suisse

From a technical perspective, the FX Analysis team at Credit Suisse sees the pair biased higher while the support at 110.83/73 remains in place: “We look for 13-day exponential average and price support at 110.83/73 to ideally hold and for a break above 111.31 to be seen for strength back to 111.80/82 ahead of 112.08 and then a retest of 112.23/40. Our bias remains to look for an eventual break higher to see an important and large base complete.”

Technical levels to watch