USD/JPY Price Analysis: Defends 100-DMA, bears still have the upper hand below mid-131.00s

• USD/JPY now seems to have entered a bearish consolidation phase near a two-month low.
• Slightly oversold RSI on the daily chart helped spot prices to defend the 100-DMA support.
• Acceptance below the 131.45 resistance-turned-support continues to favour bearish traders.

The USD/JPY pair is seen oscillating in a range around the 131.00 mark through the mid-European session and consolidating its recent slide to a nearly two-month low.

The US dollar stages a modest bounce from its lowest level since July 5 touched earlier this Tuesday and offers some support to the USD/JPY pair. That said, the recent narrowing of the US-Japan yield differential, along with the prevalent cautious mood, continues to underpin the safe-haven Japanese yen. This, so far, has failed to assist spot prices to register any meaningful recovery.

From a technical perspective, RSI (14) on the daily chart is flashing slightly oversold conditions. This, in turn, assists the USD/JPY pair to find some support near the 100-day SMA and stall its post-FOMC decline witnessed over the past one week or so. That said, acceptance below a previous strong resistance breakpoint, around the 131.45 region, supports prospects for further losses.

The aforementioned resistance-turned-support should act as a pivotal point, which if cleared decisively could trigger a short-covering around the USD/JPY pair. Spot prices could accelerate the recovery move and reclaim the 132.00 round-figure mark. Some follow-through buying beyond the 132.15 area would suggest that the recent downfall has run its course and pave the way for additional gains.

On the flip side, bearish traders might now wait for a sustained break below the 100-day SMA, currently around the 130.20 region, before positioning for an extension of the depreciating move. The USD/JPY pair might then turn vulnerable to weaken further below the 130.00 psychological mark and accelerate the fall towards testing the next relevant support around the 129.60 horizontal zone.

USD/JPY daily chart

Key levels to watch