USD/JPY Price Analysis: Ascending channel favours bullish traders, FOMC minutes awaited

• USD/JPY prolonged its positive move for the fourth straight day and climbed to a one-week high.
• The formation of a short-term ascending trend channel supports prospects for additional gains.
• Slightly overbought RSI (14) held back bulls from placing fresh bets ahead of the FOMC minutes.

The USD/JPY gained positive traction for the fourth successive day on Wednesday and shot over a one-week high, though struggled to capitalize on the move beyond the 124.00 mark.

Expectations for a more aggressive policy tightening by the Fed, along with inflation fears, pushed the US Treasury bond yields to a fresh multi-year peak. This resulted in a further widening of the US-Japanese government bond yield differential and acted as a tailwind for the USD/JPY pair.

That said, the risk-off impulse drove some haven flow towards the Japanese yen and kept a lid on any further gains for the USD/JPY pair amid modest US dollar pullback from a nearly two-year high. The technical set-up, however, supports prospects for a further near-term appreciating move.

The recent move up witnessed over the past four days or so has been along an upward sloping channel and points to a well-established short-term bullish trend. That said, investors preferred to wait on the sidelines amid slightly overbought RSI (14) on the daily chart and ahead of the FOMC minutes.

Nevertheless, the bias still seems tilted in favour of bulls and a possible move back towards the 125.00 psychological mark, or the multi-year high touched in March. That said, it will be prudent to wait for a convincing break through the channel resistance before positioning for further gains.  

On the flip side, any meaningful pullback is likely to attract fresh buying and remain limited near the 123.00 round figure. The said handle coincides with the lower end of the ascending channel, which if broken would negate the constructive outlook and prompt aggressive long-unwinding trade.

USD/JPY 1-hour chart

Key levels to watch