USD/JPY Price Analysis: Falling wedge looms as the major reclaims 127.00 ahead of FOMC minutes

• The USD/JPY is recovering some ground in the week and trimmed losses to 0.35%.
• Sentiment improved during the day since the Asian session opened, while the greenback remains buoyant.
• USD/JPY Price Forecast: A falling wedge targets a re-test of the YTD high at 131.34.

The USD/JPY stalls and rebounds from weekly lows near 126.36, despite falling US Treasury yields, as investors get ready for the release of May’s Federal Reserve’s Open Market Committee minutes. At 127.44, the USD/JPY gains some 0.54% during Wednesday’s North American session.

The market mood remains positive, as market players disregard concerns that the US Federal Reserve’s hiking cycle could spur a recession in the US. Additionally, bets that the Federal Reserve would hike near 3% diminished as money market futures swaps illustrate that investors expect the Federal Funds Rate (FFR) to finish at around 2.75%.

On Wednesday, the USD/JPY began trading above 126.70s and, since then, ground higher, breaking on its way up daily’s resistance levels, as the central pivot point at 127.07, followed by the 50-hour simple moving average (SMA) at 127.26.

USD/JPY Price Forecast: Technical outlook

The USD/JPY is neutral-upward biased, despite trading below the 20-day moving average (DMA) at 129.16, which in the near term is a bearish signal. The Relative Strength Index (RSI) at 47.31 is in bearish territory, but it’s aiming higher and could trigger a bullish signal when crossing the 50-midline. It is worth noting that USD/JPY’s price action since reaching the YTD high around 131.34 formed a falling wedge that usually breaks upwards, meaning that the USD/JPY might be at a turning point.

If that scenario plays out, the USD/JPY’s first resistance would be May 25 high at 128.08. A break above would send the pair aiming toward higher prices, exposing several resistance levels, like the 20-DMA at 129.16, followed by a re-test of the YTD high at 131.34.

On the flip side, the USD/JPY first support would be 127.00. A breach of the latter would expose the May 24 daily low at 126.36, immediately followed by the 50-DMA at 126.20 and the March 28 daily high at 125.10.

Key Technical Levels