USD/JPY Price Analysis: Breaks through 100 DMA/50% Fibo. confluence, taps 142.00 mark

• USD/JPY surges past the 141.00 confluence and rises to over a one-week high on Monday.
• Strong follow-through USD buying remains supportive amid the Fed-BoJ policy divergence.
• The mixed technical setup warrants some caution before positioning for any further gains.

The USD/JPY pair gains strong positive traction on Monday and recovers further from its lowest level since August 29 touched last week. Spot prices climb to over a one-week high during the early North American session, with bulls now looking to build on the momentum further beyond the 142.00 mark.

The worsening COVID-19 situation in China and the imposition of fresh lockdowns fuel worries about a deeper economic downturn. This, in turn, boosts the US Dollar's status as the global reserve currency. This, along with a big divergence in the monetary policy stance adopted by the Federal Reserve and the Bank of Japan, provides an additional lift to the USD/JPY pair.

From a technical perspective, a sustained strength above the 141.00 confluence support breakpoint, turned resistance, was seen as a key trigger for intraday bulls. The said handle comprises the 100-day SMA and the 50% Fibonacci retracement level of the August-October rally. This should now act as a pivotal point and determine the near-term direction for the USD/JPY pair.

Meanwhile, oscillators on the daily chart - though have been recovering from lower levels - are still holding in the bearish territory. This warrants caution before positioning for a further appreciating move. Hence, any subsequent move-up is more likely to remain capped near the 142.45-142.50 resistance. That said, some follow-through buying should pave the way for additional gains.

The USD/JPY pair might then accelerate the recovery momentum towards reclaiming the 143.00 mark, above which bulls could aim to test the 38.2% Fibo. level, around the 143.50 region.

On the flip side, the 141.00 round figure now seems to protect the immediate downside ahead of the 140.80-140.75 region. The next relevant support is pegged near the 140.25-140.20 horizontal zone. This is closely followed by the 140.00 psychological mark. A convincing break below the latter will negate any near-term positive outlook and shift the bias back in favour of bearish traders.

USD/JPY daily chart

Key levels to watch