- A combination of supportive factors helped USD/JPY regain positive traction on Friday.
- The bulls, however, appear to have a hard time capitalizing on the move beyond the 23.6% Fibonacci level.
- Breaking below 128.00 would pave the way for a deeper corrective drop.
The USD/JPY took advantage of the overnight bounce from two-week lows and gained some traction on the last day of the week. The pair maintained its bid tone and was last seen trading just below 129.00, up nearly 0.50% on the day.
The risk appetite boost, as evidenced by a strong rally in equity markets, undermined the safe-haven Japanese yen and acted as a tailwind for brown prices. The bulls were also inspired by a strong rally in US Treasury yields, although a softer tone around the US dollar capped the USD/JPY pair.
From a technical perspective, the recent retracement from a two-decade high stalled on Thursday near the 38.2% Fibonacci retracement level of the strong move up from 121.28-131.35. The mentioned support around the middle of 127.00 should act as a pivotal point for traders and help determine the short-term path.
However, the subsequent up move was unfollowed beyond the 23.6% Fibonacci level. This warrants some caution for bullish traders and positioning for any further appreciation moves. Meanwhile, the 128.50 region now appears to protect the immediate drop ahead of the round 128.00 level.
A convincing break below the latter would be seen as a new trigger for bearish traders and make the USD/JPY pair vulnerable to a retest of 127.50 (38.2% Fibonacci). the corrective drop could extend further towards the 127.00 level en route to the 50% Fibonacci level, around the 126.45 region.
On the other hand, any further upside move is likely to face stiff resistance near the 129.75-129.80 region. This is closely followed by the key psychological level 130.00, which if breached will negate any short-term negative bias. The USD/JPY pair could target again to reclaim the round 131.00 level.
USD/JPY 4-hour chart
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Technical levels
Source: Fx Street
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