USD/JPY Price Analysis: Bulls have the upper hand, move beyond 124.00 mark awaited

• USD/JPY climbed back closer to the one-week high, though struggled to conquer the 124.00 mark.
• The formation of an ascending channel favours bulls and supports prospects for additional gains.
• Sustained break below the trend-channel support is needed to negate the constructive outlook.

The USD/JPY pair attracted some dip-buying near the 123.45 region on Thursday and climbed to a fresh daily high during the early North American session. Bulls, however, struggled to capitalize on the move and now seem to wait for sustained strength beyond the 124.00 round-figure mark.

The FOMC meeting minutes released on Wednesday reinforced market bets for a 50 bps rate hike at the upcoming meetings. Investors also seem concerned that surging commodity prices would put upward pressure on the already high inflation. This, along with more hawkish comments from St. Louis Fed president James Bullard, remained supportive of elevated US Treasury bond yields.

Conversely, Bank of Japan board member Asahi Noguchi said that the central bank should maintain its ultra-easy monetary policy despite rising inflationary pressures. This points to a major divergence in the central bank policy outlooks, which, in turn, acted as a tailwind for the USD/JPY pair. That said, the risk-off impulse drove some haven flows towards the JPY and capped the upside.

From a technical perspective, the USD/JPY pair has been trending along an upward sloping channel over the past one week or so. This points to a well-established short-term bullish trend and supports prospects for a further appreciating move. Hence, a subsequent move towards testing the trend-channel resistance, currently around the 124.30 region, remains a distinct possibility.

Some follow-through buying will mark a fresh bullish breakout and set the stage for a move back towards reclaiming the 125.00 psychological mark, or the multi-year high touched in March. The momentum could further get extended towards the 125.25-30 region (August 2015 peak), above which the USD/JPY pair could climb to challenge the 2015 yearly swing high, around the 125.85 zone.

On the flip side, the 123.45 region seems to have emerged as immediate strong support and should protect the immediate downside ahead of the 123.30-123.25 region. The latter marks confluence support comprising of 100-hour SMA and the lower end of the aforementioned channel, which should act as a pivotal point for traders. 

A convincing break below would negate the near-term positive outlook and prompt aggressive long-unwinding trade around the USD/JPY pair. The corrective pullback could then drag spot prices to the 123.00 round figure. This is followed by the 122.80-122.75 region and the next relevant support near the 122.35-30 zone and the 122.00 mark.

USD/JPY 1-hour chart

Key levels to watch