USD/JPY quickly reverses a knee-jerk slide to fresh 1-week lows

The USD/JPY pair quickly reversed a knee-jerk fall to fresh 6-day lows and touched a fresh session high level of 108.95. 

Rumors of an earthquake in N. Korea, hinting to yet another nuclear test triggered a fresh wave of global risk aversion trade and dragged the pair sharply lower. The pair promptly rebounded over 40-pips from session lows after market participants realized that it was just a delayed news announcement for N. Korea's Sunday earthquake.

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The pair, however, seemed lacking any strong follow through momentum amid prevalent bearish sentiment surrounding the US Dollar. Mounting concerns over escalation of the N. Korean episode and fresh doubts over the future path of Fed's monetary tightening cycle kept the USD bulls on back-foot through mid-European session on Wednesday.

Traders now look forward to the US economic docket, featuring the release of trade balance data and ISM non-manufacturing PMI, for some short-term trading opportunities.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: "An end of the day close below 108.58 would mark a downside break of the falling channel. Such a move would revive the big sell-off from the recent high of 114.49 and shall open doors for 106.64 [38.2% Fib R of 2011 low - 2015 high]."

"On the higher side, only the bullish break of the falling channel would abort the bearish move. The trend line sloping upwards from the April low and June low is likely to offer strong resistance. The trend line hurdle currently stands at 11.22 levels" he added.