- USD/JPY gained some positive traction for the second day in a row on Monday.
- The setup favors the bulls and supports the prospects for a further appreciation move.
- A sustained weakness below 128.00 is needed to negate the positive bias.
The pair USD/JPY attracted some buying on the dips near the 128.70 region on Monday and turned positive for the second day in a row. However, the intraday rally petered out after the disappointing release of the New York Empire State Manufacturing Index, which fell to -11.6 in May.
Nonetheless, the momentum helped spot prices build on last week’s bounce from the 127.50 region, or support marked by the 38.2% Fibonacci retracement level of the strong 121.28-131.35 move higher. Subsequent strength beyond the 23.6% Fibonacci level and acceptance above 129.00 favors bullish traders.
The positive outlook is reinforced by the appearance of some buying and the fact that the oscillators on the daily chart remain comfortably in bullish territory. That said, it will still be prudent to wait for some follow-on buying before positioning for any further appreciation moves.
From current levels, the 129.75-129.80 region now appears to act as immediate resistance. This is closely followed by the key psychological level 130.00, which if broken decisively will be seen as a new trigger for bullish traders and will push the USD/JPY pair towards 131.00.
On the other hand, any significant pullback now seems to find decent support near the 129.00 mark ahead of the daily low, around the 128.70 region and the 128.20 horizontal. If such support levels are not defended, the USD/JPY pair would be vulnerable to a retest mid-127.00 (38.2% Fibonacci).
Some follow-on selling would set the stage for an extension of the recent corrective decline from a two-decade high and drag spot prices further towards 127.00. The downward path could extend to the next relevant support near the 126.45 region or the 50% Fibonacci level.
USD/JPY 4-hour chart
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Technical levels
Source: Fx Street
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