- USD/JPY is on the defensive amid falling USD and upbeat Japanese data.
- The improving sentiment is helping the pair recover ahead of the US data.
- A bullish flag pattern is forming on the daily chart, awaiting the BoJ on Thursday.
After failing to find acceptance above 129.00 last week, USD/JPY sellers have regained control as the decline extends for a second day in a row this Tuesday.
The latest drop in the pair could be attributed to a general pullback in the US dollar, while risk aversion in the market on Monday also kept the demand for the safe-haven Japanese yen.
However, in the last hour, market sentiment is improving, helping the dollar while easing buying pressure around the yen. At time of writing, USD/JPY is recovering towards 127.97, still down -0.13% on the day.
The pair hit five-day lows at 127.34 in the early Asian session after the yen strengthened following the Japanese labor market report, which showed the country’s unemployment rate fell to 2.6% in March, while the Job availability increased, according to government data.
All eyes now turn to US Durable Goods data to be released later on Tuesday, while the Bank of Japan (BoJ) policy decision and US Q4 GDP will be the main event risks for the pair this week.
Technically, the daily chart of USD/JPY shows that the price is showing a bullish flag pattern, given the recent consolidation after the strong rise since March 31.
The BoJ’s decision could validate the bullish flag if the yen is weakened by a dovish stance from the central bank this Thursday.
A sustained move above 128.70 will confirm the bullish continuation pattern and open the doors to the 20-year high of 129.40 once again.
The 14-day RSI has moved away from extreme overbought territory, offering some hope that the bulls will re-enter.
USD/JPY daily chart
In the event of an aggressive turn by the BoJ or a strong intervention, USD/JPY could break the downtrend line support at 126.70.
A daily close below this latter level will nullify the bullish chart pattern, causing the bears to resume the correction towards the 21-day moving average at 125.35.
USD/JPY additional levels
Source: Fx Street