- A combination of factors pushed the USD / JPY higher for the third day in a row.
- The formation of a rectangle points to indecision about the short-term direction.
- Investors now look at the inflation figures for American consumers.
The USD / JPY maintained its intraday gains during the first half of the European session and was last seen hovering around the daily highs, in the 110.00 zone.
The underlying bullish sentiment in financial markets undermined demand for the Japanese yen and pushed the USD / JPY pair higher for the third day in a row. They were also supported by a modest rally in US Treasury yields.
Looking at the broader technical picture, the USD / JPY has been swinging in a narrow trading band for the last four weeks or so. This constitutes the formation of a rectangle on the day’s chart and points to indecision among traders about the short-term direction of the pair, which warrants some caution.
Meanwhile, the technical indicators on this chart remain with a slight positive bias. Investors appeared reluctant amid uncertainty about the likely timing of the Fed’s buy-down program plan and ahead of the latest US consumer inflation figures released Tuesday.
Therefore, any subsequent move up could continue to face stiff resistance near the 110.30-35 supply zone, or the upper limit of the aforementioned trading range. A sustained force beyond will mark a further bullish breakout and set the stage for further rallies, towards the next relevant resistance near the 110.55-60 region.
Some follow-up buying has the potential to push the USD / JPY past the August monthly highs, near the 110.80 region, before the possible rally to 111.00 for the first time since July 5.
On the other hand, the 109.60-55 horizontal zone continues to protect the pair from weakness and the support of the trading range near the 109.45 area. A convincing pullback will turn the bias in favor of bearish traders, with USD / JPY accelerating the decline towards 109.00.