USD/JPY Forecast: Bulls need to wait for breakout through 38.2% Fibo. hurdle

• USD/JPY edges lower on Friday and erodes a part of the overnight gains to a two-week top.
• The divergent Fed-BoJ policy expectations turn out to be a key factor exerting some pressure.
• The risk-on mood could undermine the safe-haven JPY and help limit any meaningful decline.

The USD/JPY pair struggles to build on the previous day's breakout momentum and attracts fresh sellers on Friday, snapping a two-day winning streak to a nearly two-week high. The downtick is sponsored by a modest US Dollar (USD) downtick, though the prevalent risk-on environment could undermine the safe-haven Japanese Yen (JPY) and help limit deeper losses. 

Investors turned optimistic after the US macro data published on Thursday showed that Retail Sales rose more than expected in July and a still resilient labor market, which eased fears about a possible recession in the world's largest economy. In fact, the US Census Bureau reported that the total value of sales at the retail level in the US rose 1% in July and sales ex Autos grew 0.4%, beating estimates for an increase of 0.3% and 0.1%, respectively. Another report published by the US Department of Labor (DOL) revealed that there were 227K Initial Jobless Claims in the week ending August 10, lower than the 235K expected and the 234K previous. 

Traders were quick to react and scaled back expectations for more aggressive policy easing by the Federal Reserve (Fed). The markets, however, still see a greater chance that the US central bank will begin its rate-cutting cycle in September. This, in turn, triggers a fresh leg down in the US Treasury bond yields and acts as a headwind for the USD. The JPY, on the other hand, draws support from the stronger second-quarter Gross Domestic Product (GDP) print from Japan on Thursday. This could encourage the Bank of Japan (BoJ) to continue raising interest rates, which, in turn, is seen exerting some pressure on the USD/JPY pair. 

Nevertheless, the lack of any meaningful selling warrants some caution for bearish traders and before confirming that the recent sharp recovery from the 141.70-141.65 region, or the YTD low touched in July has run its course. Traders now look to the second-tier US macro data – Building Starts and Housing Permits, along with the Preliminary Michigan Consumer Sentiment Index – short-term opportunities later during the early North American session. The market focus, however, will remain glued to the FOMC meeting minutes, due for release next Tuesday, and Fed Chair Jerome Powell's appearance at the Jackson Hole Symposium.

Technical Outlook

From a technical perspective, the overnight strong move up falters a resistance marked by the 38.2% Fibonacci retracement level of the July-August slump. The said barrier is pegged near the 149.35-149.40 region, which should now act as a key pivotal point for traders. A sustained strength beyond might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 150.00 psychological mark. The momentum could extend further towards an intermediate resistance near the 150.75-150.80 region en route to the 151.00 round figure and the 151.50-151.70 confluence – comprising the 200-day Simple Moving Average (SMA) and the 50% Fibo. level.

On the flip side, weakness below the Asian session low, around the 148.75-148.70 region, could find some support near the 148.20 area. This is closely followed by the 148.00 mark, below which the USD/JPY pair could accelerate the fall towards the 147.30-147.25 intermediate support en route to the 147.00 round figure and the 23.6% Fibo. level, around the 146.50-146.45 region. Failure to defend the said support levels might shift the near-term bias back in favor of bearish traders and prompt aggressive technical selling, paving the way for a slide towards the 146.00 mark, the 145.45 area and the 145.00 psychological mark.