USD/JPY Price Analysis: Breakout of the 100/50% DMA confluence of the Fibonacci level, breaks above the 142.00 level

• USD/JPY breaks above the 141.00 confluence and rises to a 1-week high on Monday.
• The strong tracking of dollar purchases remains a support amid the policy divergence between the Fed and the BOJ.
• The mixed technical setup warrants some caution before positioning for more profit.

The pair USD/JPY gains strong positive traction on Monday and further recovers from its lowest level since August 29 hit last week. The price rises to 1-week highs during the early American session, and the bulls are now looking to take advantage of the momentum beyond 142.00.

The worsening of the COVID-19 situation in China and the imposition of new lockdowns fuel concerns of a deeper economic downturn. This, in turn, boosts the dollar’s status as the world’s reserve currency. This, coupled with a large divergence in the monetary policy stance taken by the Federal Reserve and the Bank of Japan, provides an additional boost to the USD/JPY pair.

Technically, sustained strength above the breakout of 141.00 confluence support-turned-resistance was seen as a key trigger for intraday bulls. This zone comprises the 100-day SMA and 50% Fibonacci level of the August-October rally. This should act as a pivot point and determine the short-term direction for the USD/JPY pair.

Meanwhile, the oscillators on the daily chart -although they have recovered from lower levels- continue to remain in bearish territory. This warrants caution before positioning for a further appreciation move. Therefore, any further move higher is more likely to be capped near the 142.45-142.50 resistance. That being said, a few follow-up purchases should pave the way for additional earnings.

The USD/JPY pair could then accelerate rally momentum towards a recovery of 143.00, above which bulls could aim to test the 38.2% Fibonacci level around 143.50.

On the other hand, the round 141.00 level seems to protect the immediate downside ahead of the 140.80-140.75 level. The next relevant support is near the 140.25-140.20 horizontal zone. It is closely followed by the key psychological 140.00 level. A convincing break below the latter will negate any short-term positive outlook and shift the bias in favor of the bears.

USD/JPY daily chart

Key levels to watch