USD/JPY Price Analysis: 50-DMA caps the downside, for now

• USD/JPY reverses losses in tandem with the US dollar.
• The market mood remains upbeat, Treasury yields recover losses.
• The pair defends 50-DMA once again but not for long.

USD/JPY is trading on the defensive around the 127.00 level, licking its wound after the drop to 126.68 lows in Asian trading.

The spot is off the lows, tracking the recovery in the US dollar across its main peers. The downside in the major also appears capped amid a minor bounce in the US Treasury yields and positive European equities.

Markets also assess the latest comment from the Japanese PM Fumio Kishida and BOJ Governor Haruhiko Kuroda, as both leaders expressed their take on the country’s growth and inflation outlook.

All eyes now remain on the US PCE Price Index data for fresh dollar valuations, eventually affecting the pair. Note that the latest slew of US macro data has not been very encouraging and has collaborated with the downside in the buck.

Technically, USD/JPY’s daily chart shows that the price is moving lower while within a falling wedge formation after peaking out at 131.34 earlier this month.

Bears are now testing the lower range of the wedge, although the bullish 50-Daily Moving Average (DMA) at 126.55 has been guarding the downside over the past four trading days.

If the latter gives way on a sustained basis, then a test of the wedge lower boundary at 125.90 will be inevitable.

The 14-day Relative Strength Index (RSI) is inching lower below the midline, suggesting that there is scope for additional weakness going forward.

USD/JPY: Daily chart

However, the major could find fresh bids near the wedge support, which may prompt a rebound towards the wedge’s upper boundary, now pegged at 127.83.

Daily closing above that hurdle will confirm a falling wedge breakout, recalling buyers for a fresh run towards the downward-pointing 21-DMA at 128.90.

Ahead of that upside target, the 128.50 psychological barrier could test the bearish commitments.

USD/JPY: Additional levels to consider