USD/JPY Price Analysis: At Two-Week Highs and Has Scope to Continue Higher

• USD/JPY has been aggressively bid on Tuesday and has spiked to a nearly two-week high.
• The resurgence in the demand for dollars was a key factor that provided a strong impetus.
• The scenario favors the bulls and supports the prospects for additional gains.

The pair USD/JPY built on the previous day’s positive movement and gained strong follow-on traction for the second day in a row on Tuesday. The momentum took the price to a nearly two-week high around the 128.70-128.75 region during the early North American session, and was fueled solely by resurgent demand for the US dollar.

Fed Governor Christopher Waller on Monday backed a 50 basis point rate hike during several meetings until inflation returns close to the central bank’s target. These statements sparked a sharp rally in US Treasury yields, which in turn helped the dollar to recover solidly from the one-month lows hit the previous day.

From a technical point of view, the strong move up confirmed the breakout of a multi-day resistance. This barrier coincided with the upper end of a descending channel extending from a two-decade high hit earlier this month and the 38.2% Fib retracement level of the 121.28-131.35 high.

As the technical indicators on the daily chart have moved back into positive territory, the USD/JPY pair looks set to break above the 23.6% Fibonacci level and reclaim the 129.00 level. Follow-up buying should push the pair price to the 130.00 round figure, with intermediate resistance near the 129.60-129.70 area.

On the other hand, any significant pullback below the 127.60-127.55 confluence resistance breakout point could now be seen as a buying opportunity and be capped near the 127.10-127.00 region. Next is the monthly swing low, around the 126.35 region, which coincides with the 50% Fibonacci level and should act as a pivot point.

Failure to defend such support levels would negate any short-term positive bias and the USD/JPY pair would be vulnerable. The bearish trajectory could then drag the pair below the 126.00 round figure, towards the test of the 125.65 support. The next relevant support lies near the 61.8% Fibonacci level, around the key psychological level 125.00.

USD/JPY daily chart

Technical levels