USD/JPY: Upside remains capped below 114.50 amid firmer yields, risk-off mood

• USD/JPY stalls the upside amid risk-off mood, awaits US data.
• US Treasury yields retreat from highs, DXY remains broadly underpinned.
• USD/JPY remains bid amid a quiet start to the week, Fed sentiment to lead the way.

Having tested three-year highs of 114.46 in early Asia, USD/JPY is consolidating above 114.00, as the bulls take a breather before resuming the upside momentum.

The major closely follow the price action in the US Treasury yields, tagging alongwith the benchmark 10-year rates. The renewed uptick in the yields drove the currency pair back towards the multi-year tops reached on Friday.

However, the 10-year rates seem to lack follow-through upside bias above 1.60%, capping USD/JPY’s effort to refresh three-year tops.

The downside in the major remains cushioned by the strengthening US dollar, as the risk tone remains softer heading into early European trading.

China’s Q3 GDP disappointed with 4.9% YoY vs. 5.2% expected, hitting a fresh yearly low. The re-emergence of the China slowdown worries combined with surging oil prices tempered the market mood and supported the dollar bulls.

Meanwhile, Japanese Prime Minister Fumio Kishida said that he has no plans to change the sales tax. The pair is likely to get influenced by the broader market sentiment and the yields’ price action, as the US data docket is relatively scarce.

Fedspeak will draw some attention, however, amid rising Fed’s hawkish expectations.

USD/JPY: Technical outlook

“The USD/JPY first resistance level is October 4, 2018, high at 114.54, which is a crucial price level, unsuccessfully tested four times in four years. A break above the latter can clear the way for further gains, exposing key resistance levels like January 27, 2017, high at 115.37, followed by January 9, 2017, high at 117.52. On the other hand, failure at 114.00 could open the door for a leg-down in confluence with the current RSI oversold conditions,” explains FXStreet’s Analyst Christian Borjon Valencia.

USD/JPY: Additional levels to consider