USD/JPY Price Analysis: Climbs to three-day high, eyes descending trend-line resistance

• A combination of supporting factors assisted USD/JPY to regain positive traction on Tuesday.
• Fading safe-haven demand weighed on the JPY and extended support amid rising US bond yields.
• Broad-based USD weakness held back bulls from placing aggressive bets and capped the upside.
• Sustained move beyond a descending trend-line resistance is needed to confirm a fresh breakout.

The USD/JPY pair edged higher during the early North American session and climbed to a three-day high in reaction to better-than-expected US Retail Sales figures. The pair was last seen trading around the 129.75 region, up 0.40% for the day, with bulls now looking to build on the momentum beyond the 200-period SMA on the 4-hour chart.

The risk-on impulse - as depicted by a strong rally in the equity markets - undermined the safe-haven Japanese yen and assisted the USD/JPY pair to regain traction on Tuesday. Apart from this, a goodish pickup in the US Treasury bond yields acted as a tailwind for spot prices, though broad-based US dollar weakness might cap gains.

From a technical perspective, the USD/JPY pair now seems to have confirmed a bullish breakout through a two-day-old trading range. Meanwhile, technical indicators on the daily chart are holding comfortably in the bullish territory and have again started gaining positive traction on hourly charts, adding credence to the constructive set-up.

Any subsequent move up, however, is likely to remain capped near a downward sloping trend-line. The said hurdle is pegged just ahead of the 130.00 psychological mark, which now coincides with the 61.8% Fibonacci retracement level of the 131.35-127.52 corrective slide and should act as a key pivotal point for short-term traders.

A convincing break through the aforementioned confluence barrier would set the stage for the resumption of the prior bullish trend. The USD/JPY pair might then surpass an intermediate hurdle near the mid-130.00s and reclaim the 131.00 mark. Bulls might eventually aim back to challenge a two-decade high, around the 131.35 area.

On the flip side, the 50% Fibo. level, near the 129.45-129.40 zone, now seems to protect the immediate downside ahead of the 129.15 area. This is closely followed by the 129.00 round figure and the daily low, around the 128.85 region, which if broken decisively would drag the USD/JPY pair towards the 129.00 mark, or the 38.2% Fibo. level.

The next relevant support is pegged near the lower end of the trading range, around the 128.70 region, which if broken would shift the bias in favour of bearish traders. The subsequent downfall would expose intermediate support near the 128.30-128.20 region before the USD/JPY pair break below the 128.00 mark and retest mid-127.00s (38.2% Fibo.).

USD/JPY 4-hour chart

Key levels to watch