USD/JPY quickly reverses a knee-jerk fall to 106.00 neighborhood

   •  China said to introduce counter-tariffs, targeting US agricultural exports.
   •  Global trade war concerns prompt some safe-haven buying.
   •  Downside remains limited ahead of the key FOMC announcement.

The USD/JPY pair dropped to fresh session lows, closer to the 106.00 handle, in a knee-jerk reaction to the WSJ report on possible Chinese countermeasures against the planned US tariffs. 

According to the report, citing people familiar with the matter, China is said to target US agricultural exports, depending on what the Trump administration proposes. The headlines fueled concerns of a full-blown US-China trade war and prompted some aggressive safe-haven buying. 

The pair, however, managed to quickly recover around 25-pips from lows and seemed to track a goodish pickup in the US Treasury bond yields. Investors seemed reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the latest FOMC monetary policy update, due to be announced later during the NY trading session.

Technical levels to watch

The 106.00 handle might continue to act as an immediate support, below which the pair seems to aim back towards challenging mid-105.00s before eventually dropping to the key 105.00 psychological mark.

On the upside, 106.60 level seems to have emerged as an immediate resistance, above which a bout of short-covering could lift the pair beyond the 107.00 handle towards testing the 107.35-40 supply zone.