USD/JPY Outlook: Further gains towards ascending channel hurdle remains on the cards

• USD/JPY added to its weekly gains and climbed to over one-week tops on Thursday.
• The prevalent risk-on mood weighed on the safe-haven JPY and remained supportive.
• A softer tone surrounding the USD held bulls from placing fresh bets and capped gains.

The USD/JPY pair built on this week's goodish rebound from sub-105.00 levels and gained traction through the early part of the trading action on Thursday. The momentum pushed the pair to over one-week tops during the Asian session, albeit struggled to find acceptance above the 106.00 mark. The uptick was exclusively sponsored by the underlying bullish sentiment in the financial markets, which tends to undermine demand for the safe-haven Japanese yen. Bulls further took cues from the recent runaway rally in the US Treasury bond yields, though a softer tone surrounding the US dollar kept a lid on any further gains for the major.

Investors remain optimistic about a stronger global economic recovery amid the progress in COVID-19 vaccinations and US President Joe Biden's proposed $1.9 trillion stimulus package. In fact, the pandemic-relief legislation will be put on the House floor for a potential vote on Friday or over the weekend. Adding to this, Fed Chair Jerome Powell's reassurance that interest rates would stay low for a long time gave a fresh impetus to reflation trade and further boosted the global risk sentiment. The risk-on flow, along with rising inflation expectations, pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020.

The USD, however, struggled to gain any meaningful traction and remained depressed on the back of the Fed's dovish stance. This, in turn, held bulls from placing aggressive bets and capped any meaningful upside for the major, at least for the time being. The pair was last seen hovering around the 105.90 region as market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) Q4 GDP print. Apart from this, the US Durable Goods Orders data and speeches by influential FOMC members, will influence the USD later during the early North American session and produce some meaningful trading opportunities around the pair.

Short-term technical outlook

From a technical perspective, the pair has been trending higher along an upward sloping channel over the past two months or so. The formation points to a well-established short-term bullish trend and supports prospects for additional gains. Hence, a subsequent strength beyond monthly swing highs, around the 106.20-25 region, looks a distinct possibility. The pair might eventually climb to test the trend-channel resistance, currently near the 106.70-75 zone. Some follow-through buying will be seen as a fresh trigger for bullish traders and set the stage for a further near-term appreciating move.

On the flip side, any meaningful slide might now find decent support near the very important 200-day SMA, around the 105.40 region. This is followed by the key 105.00 psychological mark, which coincides with the channel support and should now act as a strong base for the major. A sustained breakthrough, leading to a further slide below the 104.40 region (monthly swing lows) will negate any near-term bullish bias and turn the pair vulnerable.