USD/JPY Price Analysis: Bulls have the upper hand, gearing up for a move beyond 136.00

• USD/JPY lacked any firm direction on Monday and seesawed between tepid gains/minor losses.
• Bulls need to wait for sustained strength beyond the 135.50-60 area before placing fresh bets.
• Break below the 134.00 mark might prompt aggressive selling and expose last week’s swing low.

The USD/JPY pair struggled to capitalize on Friday's dovish Bank of Japan-inspired strong move up and witnessed subdued/range-bound price action on the first day of a new week. Spot prices seesawed between tepid gains/minor losses through the early North American session and now seem to have stabilized in neutral territory, around the 135.00 psychological mark.

The recent sharp pullback in the US Treasury bond yields prompted some US dollar selling and turned out to be a key factor that acted as a headwind for the USD/JPY pair. That said, a generally positive tone around the equity markets, along with the Fed-BoJ monetary policy divergence, undermined the safe-haven Japanese yen and extended some support to spot prices.

From a technical perspective, the intraday pullback from the vicinity of mid-135.00s constitutes the formation of a bearish double-top on short-term charts. The lack of follow-through selling, however, warrants some caution before positioning for any meaningful downside. Moreover, oscillators on 4-hourly/daily charts are still holding in the bullish territory.

The mixed technical setup makes it prudent to wait for a sustained move in either direction before positioning for the near-term trajectory. A convincing break through the 135.45-135.50 resistance zone would be seen as a fresh trigger for bullish traders and allow the USD/JPY pair to reclaim the 136.00 round-figure mark for the first time since 1998.

The subsequent move up has the potential to lift spot prices towards a nearly two-week-old ascending trend-line resistance, currently near mid-136.00s.

On the flip side, the daily swing low, around mid-134.00s now seems to protect the immediate downside for the USD/JPY pair ahead of the 134.30-134.20 horizontal support. This is closely followed by the 134.00 round figure, which if broken decisively would validate the double-top bearish pattern and prompt aggressive long-unwinding trade.

The USD/JPY pair might then turn vulnerable to break below the 133.00 mark and test the next relevant support near the 132.45 region before dropping to the 132.00 handle. The corrective decline could eventually drag spot prices back towards the 131.50-131.30 horizontal resistance breakpoint. The latter should act as a strong near-term base for the major.

USD/JPY 4-hour chart

Key levels to watch