USD/JPY Forecast: Bulls await ascending channel breakout

A combination of factors assisted the USD/JPY to gain some follow-through traction on Wednesday and reclaim the 111.00 mark for the time since March 2020. A generally positive risk tone continued undermining the safe-haven Japanese yen. Apart from this, the emergence of some fresh US dollar buying interest provided an additional boost to the major. As investors looked past the Fed Chair Jerome Powell's commentary on Tuesday, the USD was back in demand after two Fed officials said that the high inflation would last longer than expected.

Atlanta Fed President Raphael Bostic said he expects the interest rate will need to increase in late 2022 as he is looking for growth of 7% in 2021 and inflation for the year to be 3.4%. It is fully appropriate to be planning to start the tapering process and anticipated first rate hike in late 2022, followed by two in 2023, Bostic added further. Adding to this, Fed Governor Michelle Bowman indicated that the recovery in the labor market and spending on goods and services have contributed to the upward pressure on consumer prices.

The intraday USD uptick got an additional boost after the flash PMI prints pointed to the continuation of the impressive growth of the US economy in June. In fact, the US Manufacturing PMI rose to a record high level of 62.6 during the reported month. This, to a larger extent, helped offset a pullback in the gauge for the services sector, which dropped to 64.8 from 70.4 in May. Apart from this, a modest uptick in the US Treasury bond yields turned out to be another factor that underpinned the USD and remained supportive of the bid tone surrounding the major.

The pair finally settled near the top end of its daily trading range and held steady near YTD tops through the Asian session on Thursday. Market participants now look forward to a slew of important US macro data for some impetus later during the early North American session. The US economic docket highlights the release of the final Q1 GDP print, Durable Goods Orders, the usual Initial Weekly Jobless Claims and Goods Trade Balance figures for May. This, along with the US bond yields and the broader market risk sentiment, might produce some trading opportunities around the major.

Short-term technical outlook

From a technical perspective, this week's rebound from the vicinity of a support marked by the lower boundary of an ascending channel and a subsequent move beyond the 111.00 mark favours bullish traders. That said, RSI on the daily chart has moved on the verge of moving into the overbought territory. Hence, any further gains are more likely to remain capped near the trend-channel hurdle, currently near the 111.30 region. However, a convincing breakthrough will reaffirm the positive outlook and set the stage for a further near-term appreciating move.

On the flip side, any meaningful pullback below immediate support near the 110.70 horizontal level could be seen as a buying opportunity and remain limited near the 110.20 area. This is followed by the key 110.00 psychological mark and the ascending channel support, around the 109.75 region. Failure to defend the mentioned support levels will negate the near-term bullish bais and prompt some aggressive technical selling. The next relevant support is pegged near 50-day SMA, around the 109.30-25 region, below which the pair is more likely to slide further below the 109.00 mark.