- USD/JPY witnessed good two-way price moves on Friday, though lacked any firm direction.
- The set-up favours bullish traders and supports prospects for a further appreciating move.
- A sustained break below ascending trend-line support is needed to negate the positive bias.
The USD/JPY pair lacked any firm directional bias on the last trading day of the week and seesawed between tepid gains/minor losses through the mid-European session.
The pair extended the previous day's retracement slide from the 110.80 region, or the highest level since early April and witnessed some intraday selling on the last trading day of the week. A generally weaker tone around the equity markets provided a modest lift to the safe-haven Japanese yen and exerted some pressure on the major.
Bearish traders further took cues from a fresh leg down in the US Treasury bond yields. That said, the Fed's sudden hawkish shift – signalling that it might raise interest rates at a much faster pace than anticipated previously – acted as a tailwind for the US dollar. This, in turn, helped limit any meaningful pullback for the USD/JPY pair.
Looking at the technical picture, the USD/JPY pair has been trending higher along an upward sloping channel over the past two months or so. This points to a well-established short-term bullish trend and supports prospects for additional gains. Moreover, bullish resilience below the key 110.00 psychological mark adds credence to the positive outlook
The constructive set-up is further reinforced by the fact that technical indicators on the daily chart are holding comfortably in the bullish territory and are still far from being in the overbought zone. Hence, any meaningful dips might still be seen as a buying opportunity and remain limited amid absent relevant market moving economic releases.
From current levels, the pre-Fed lows, around the 109.80 area is likely to protect the immediate downside. This is followed by ascending trend-line support, around mid-109.00s and 50-day SMA, near the 109.15 region. Failure to defend the mentioned support level, leading to a subsequent slide below the 109.00 mark will negate the bullish bias.
The USD/JPY pair might then accelerate the slide further towards intermediate support near the 108.55 region. Bearish traders might eventually drag the pair further towards the 108.00 mark en-route the next relevant support near the 107.85-80 zone.
On the flip side, immediate strong resistance is pegged near the 110.70-75 region ahead of YTD tops, just ahead of the 111.00 mark. Some follow-through buying should pave the way for an extension of the recent appreciating move and push the USD/JPY pair further towards March 2020 swing highs, around the 111.70 region.
USD/JPY daily chart
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Technical levels to watch
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