USD/JPY runs into a wall of hourly resistance, will it hold?

• USD/JPY bears could be about to move in a critical area on the hourly chart. 
• The US dollar has been relentless and has gone on to score a fresh bull cycle high in DXY.

At 127.58, the price of USD/JPY is down 0.43% and was pressured to fresh bear corrective lows on Tuesday at 127.02. In recent trade, however, the US dollar has rallied and pushed the yen back to 127.63. 

The US dollar improved versus its major trading partners early Tuesday, with the DXY up 0.59% printing fresh cycle highs yet again. However, the yen can attract a safe haven bid also which raises the prospects of a downside continuation as soon as the US dollar bulls start to move out. 

The focus will turn to the Bank of Japan meets Wednesday and Thursday and is expected to maintain its ultra-low interest rate policy. The BoJ continues to buy securities to defend its interest rate cap. Japan’s position as a net importer of commodities combined with the very dovish position of the BoJ has been weighing heavily on JPY, which can all stall any significant advance in the yen for the meanwhile. 

Meanwhile, Wall Street tumbled on Tuesday, led lower by the Nasdaq as investors worried about slowing global growth and a more aggressive Federal Reserve. Additionally, the Atlanta Fed Gross Domestic Product nowcast estimate for the first quarter growth was revised sharply lower to 0.4% from 1.3% on April 19. The next update is on Wednesday, the final estimate before the Bureau of Economic Analysis releases its advance reading of Q1 GDP on Thursday. 

Personal income and spending on Friday will also be a key release for the US while Federal Reserve officials remain in quiet period before the May 3-4 Federal Open Market Committee meeting. markets expect that a 50-basis point increase is a distinct possibility based on recent comments from officials.

USD/JPY H1 chart

The M-formation is a reversion pattern that has drawn in the price to the neckline of the pattern. This is seeing the price start to decelerate in the correction near a 50% and 61.8% ratio area. Therefore, there has been a significant enough correction to attract in the bears again at a discount that could lead to a downside continuation.