USD/JPY subdued in 113.80 area ahead of Fed, eyeing bullish breakout above 114.00

• USD/JPY is trading subdued close to the 113.80 mark, but has been gradually ebbing higher all week into the Fed.
• The pair appears to have formed an ascending triangle and could soon see a bullish breakout.

USD/JPY continues to trade in subdued fashion, as has been the case for most of the week, if not with a slight positive bias, as the US dollar picks up in the run-up to the Fed’s policy announcement. The US data already released this week has by and large been dollar supportive, with Tuesday’s Producer Price Inflation report much hotter than expected and Wednesday’s Retail Sales not quite as strong as forecast but still at healthy levels, while the NY Fed Manufacturing survey indicated a strong start to the month for US industry.

Since bottoming out in the 113.20s at the start of the week, USD/JPY has gradually pushed higher, sticking fairly close to its 50-day moving average along the way, and now trades in the 113.80s. That translates into modest on-the-week gains of about 0.4%, with the price action for now being capped by the 21DMA (currently at 113.875). Last week’s near-114.00 highs are also providing some resistance, though it looks increasingly likely that USD/JPY is going to break out to the upside.

The pair appears to have formed an ascending triangle over the last few sessions, which technicians will note is typically indicative of a bullish breakout. A more hawkish than expected Fed could be just the catalyst that USD/JPY would need to break higher, so long as it spurred upside in long-term US government bond yields, to which the pair is most sensitive. From a technical perspective, a bullish breakout could open the door for USD/JPY to push on towards recent highs around 115.50.