USD/JPY Price Analysis: Spikes to a near two-week high, seems poised to appreciate further

• USD/JPY caught aggressive bids on Tuesday and shot to a near two-week high.
• Resurgent USD demand was seen as a key factor that provided a strong boost.
• The set-up favours bullish traders and supports prospects for additional gains.

The USD/JPY pair built on the previous day's positive move and gained strong follow-through traction for the second successive day on Tuesday. The momentum pushed spot prices to a nearly two-week high, around the 128.70-128.75 region during the early North American session and was exclusively sponsored by resurgent US dollar demand.

Fed Governor Christopher Waller on Monday backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. The remarks triggered a sharp spike in the US Treasury bond yields, which, in turn, assisted the USD to make a solid comeback from over a one-month low touched the previous day.

From a technical perspective, the strong move up confirmed a breakout through a multi-day-old trading range resistance. The said barrier coincided with the top end of a descending channel extending from a two-decade high touched earlier this month and the 38.2% Fibonacci retracement level of the 121.28-131.35 rally.

Given that technical indicators on the daily chart have again started moving in the positive territory, the USD/JPY pair seems all set to surpass the 23.6% Fibo. and reclaim the 129.00 mark. Some follow-through buying should push spot prices to the 130.00 round figure with some intermediate resistance near the 129.60-129.70 area.

On the flip side, any meaningful pullback below the 127.60-127.55 confluence resistance breakpoint might now be seen as a buying opportunity and remain limited near the 127.10-127.00 region. This is followed by the monthly swing low, around the 126.35 region, which coincides with the 50% Fibo. level and should act as a pivotal point.

Failure to defend the said support levels would negate any near-term positive bias and make the USD/JPY pair vulnerable. The downward trajectory could then drag spot prices below the 126.00 round figure, towards testing the 125.65 support. The next relevant support is pegged near the 61.8% Fibo. level, around the 125.00 psychological mark.

USD/JPY daily chart

Key levels to watch