USD/JPY pauses advance below 137.50 as risk rebound caps US dollar

• USD/JPY consolidates the upswing below 137.50 as bulls take a breather.
• The US dollar eases off multi-week highs as risk tone improves on China rate cuts.
• Bulls need a firm break above 137.50 to confirm ascending triangle on the 1D chart.

USD/JPY is retreating from monthly highs towards 137.00, having paused its five-day winning streak, as bulls take a breather.

The latest leg down in the major is led by the pullback in the US dollar from five-week highs against its major peers, as risk sentiment improves after China’s central bank cuts Loan Prime Rates (LPR) to stimulate credit spending and in turn the country’s stumbling economic growth.

The recovery in the Asian markets is driven by Chinese stocks while the S&P 500 futures pare losses. Meanwhile, the renewed weakness in the US Treasury yields also adds to the weight on the USD/JPY pair.

Earlier in the Asian session, the major enjoyed sizeable gains and recaptured the 137.00 level, as investors cheered Friday’s gains in the dollar, as well as, the yields on increasing odds of hawkish Fed rate hikes heading into the all-important Jackson Hole Symposium, starting from August 26.

From a short-term technical perspective, bulls need to crack the horizontal trendline resistance near 137.50 on a daily closing basis to extend the bullish momentum.

The upside break will confirm an ascending triangle formation on the daily sticks.

The next strong hurdle is seen at 138.00 the round number, above which bulls will target 138.87, the July 21 high.         

The next crucial resistance is aligned at 135.00, which is the confluence of the round figure mark and the bearish 21-Daily Moving Average (DMA).  

The 14-day Relative Strength Index (RSI) is on a gradual ascent above the midline, adding credence to a potential move higher.

USD/JPY: Daily chart

On the flip side, the upward-sloping 50-Daily Moving Average (DMA) at 135.53 will guard the downside on rejection at higher levels.

Further south, the horizontal 21 DMA at 134.59 could come to the rescue of buyers.

USD/JPY: Additional levels to consider