USD/JPY Price Analysis: Rises to a 3-day high, eyeing descending trendline resistance

• A combination of supportive factors helped USD/JPY regain positive traction on Tuesday.
• The disappearance of safe haven demand weighed on the yen and extended support amid rising US bond yields.
• The general weakness of the dollar prevented the bulls from making aggressive bets and limited the rallies.
• A sustained move beyond downtrend line resistance is needed to confirm a further breakout.

The pair USD/JPY rose during the early part of the American session and hit a three-day high in reaction to better-than-expected US retail sales figures. The pair last hovered around the 129.75 area, up 0.40% on the day, with the bulls now looking to build on the momentum beyond the 200-period SMA on the 4hr chart.

The risk appetite boost, represented by a strong rally in equity markets, undermined the safe haven of the Japanese yen and helped the USD/JPY pair regain traction on Tuesday. In addition, a nice rally in US Treasury yields acted as a tailwind for spot prices, although broader US dollar weakness could limit gains.

From a technical point of view, the USD/JPY pair appears to have confirmed a bullish breakout through a two-day trading range. Meanwhile, technical indicators on the daily chart remain comfortably in bullish territory and have started to gain positive traction on the hourly charts again, adding credence to the constructive setup.

However, any further upside moves are likely to be capped by a descending trend line. Such a hurdle lies just before the key psychological level 130.00, which now coincides with the 61.8% Fibonacci retracement level of the 131.35-127.52 corrective decline and should act as a sweet spot for short-term traders.

A convincing breakout of the aforementioned confluence barrier would set the stage for a resumption of the previous uptrend. The USD/JPY pair could then break an intermediate hurdle near the mid-130.00 level and reclaim the 131.00 level. The bulls could challenge a two-decade high again, around the 131.35 area.

On the other hand, the 50% Fibonacci level, near the 129.45-129.40 area, seems to protect the immediate drop ahead of the 129.15 area. It is closely followed by the 129.00 round level and the daily low, around the 128.85 region, which if broken decisively would drag the USD/JPY pair towards the 129.00 level, or the 38.2% Fibonacci level.

The next relevant support is set near the lower end of the trading range, around the 128.70 region, which if broken would change the bias in favor of bearish traders. The subsequent drop would expose intermediate support near the 128.30-128.20 region before the USD/JPY pair breaks below the 128.00 mark and retests the 127.50 level (Fibo. 38.2%).

USD/JPY 4-hour chart

Technical levels