USD/JPY analysis: bulls hesitate, but don't give up ahead of BOJ

USD/JPY Current price: 110.42

  • USD benefited from solid local data but also from an ultra-dovish ECB.
  • BOJ expected to maintain the status quo after reducing again its bond-buying.

The USD/JPY pair has trimmed its Wednesday losses entering positive territory mid-US session, after bottoming at 109.91. The recovery was a combination of solid US data and an ultra-dovish ECB. US Retail Sales surged in May 0.8%, doubling market's forecast of 0.4%. The Control Group figure came in at 0.5%, beating expectations of 0.4%. Additionally boosting the greenback was EUR's crash after the ECB's dovish announcement. Despite actually forecasting the end of QE, the central bank decided to keep rates on hold at least all through next summer, quite a disappointment. But the fact is that the Fed hike rates on Wednesday and upgraded its dot plot to 4 rate hikes this year. The market gave up on the greenback after the event as hawkish as expected, but surely ultra-hawkish when compared to dovish Draghi.

The Bank of Japan is having a monetary policy meeting during the upcoming session but it is expected to be a non-event. During the past Asian session, the BOJ reduced its purchases of 3-5Y JGBs from 330bn Yen to 300bn Yen, something that the market tends to see as the beginning of an exit strategy. So far Kuroda has denied it and said that inflation is well below the target, and these cuts are just part of their strategy to maintain the yield-curve under control. Any deviation of what the BOJ has offered lately will be a shocker.

In the meantime, the 4 hours chart shows that the pair briefly broke below the key Fibonacci support at 110.15 but holds above it, while technical indicators regained the upside, heading into the Asian session with upward slopes but well below their previous weekly highs. Moving averages in the mentioned chart remain well below the current level and with no clear directional strength. Mild-bullish, the pair needs to surpass its weekly high of 110.84 to complete a 100% retracement to May's high of 111.39.

Support levels: 110.15 109.70 109.35  

Resistance levels: 110.85 111.20 111.45

View Live Chart for the USD/JPY

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