USD/JPY surges above 111 as US government shutdown comes to an end

• USD/JPY breaks above 111 in US afternoon.
• Wall Street cheers the end of the government shutdown.
• DXY recovers the majority of its daily losses.

The USD/JPY pair gained traction in the last hour and broke above the 111 handle to refresh its daily high at 111.22. As of writing, the pair was trading at 111.12, adding 0.38% on the day.

Earlier in the session, NBC reported that the U.S. Senate had enough votes to approve the stopgap bill, which would bring the government shutdown to an end. Democratic Leader Schumer confirmed a few minutes later by saying that a deal had been reached, allowing the US Dollar Index to start recovering its daily losses. The DXY advanced to a session peak of 90.42 with the initial reaction before losing its momentum. At the moment, the index is down 0.22% at 90.30.

On the other hand, the pair received an additional boost from the improving market sentiment in the session. After starting the day slightly lower and struggling to move into the positive territory, major equity indexes in the U.S. staged a relief rally, keeping the demand for safe-havens low. The Dow Jones Industrial Average and the S&P 500 were adding 0.25% and 0.58% respectively.

During the Asian session on Tuesday, the BoJ is going to announce its interest rate decision and publish its monetary policy statement. "Clearly, with risks skewed to the downside in USD/JPY, Kuroda and Co. have little room to signal policy normalization. At the same time, Governor will find it hard to convince markets that  QQE taper or policy normalization is unlikely to begin any time soon. Moreover, the markets have become extremely sensitive to even subtle signs the central bank may follow the footsteps of its US and European counterparts in unwinding the massive stimulus," FXStreet Analyst Omkar Godbole wrote in a recently published article.

Technical levels to consider

Despite today's upsurge, the pair could have a difficult time extending its recovery unless it makes a daily close above the critical 111.75 mark, where the 200-DMA is located. Above that level, 112.30 (50-DMA) and 112.70 (100-DMA) could be targeted in the short-term. On the downside, supports are located at 110.60 (daily low), 110 (psychological level) and 109.55 (Sep. 14 low).