USD/JPY bulls cling to gains and hold the spot around 125.80s

The USD/JPY barely advances during the day, as the Asian session is about to begin and extends its rally to two consecutive days, amidst a downbeat market mood, a firm US dollar, and higher US Treasury yields, which underpinned the USD/JPY. At the time of writing, the USD/JPY is trading at 125.89.

US equities finished the week with losses as traders prepared for a long weekend, while the 10-year benchmark note rose 12.5 basis points up to 2.827%, underpinning the greenback. The US Dollar Index, a gauge of the buck’s value against a basket of currencies, rose by 0.46%, sitting at 100.307.

Geopolitical jitters, rising global inflation, Fed speaking, and expectations of the Federal Reserve 50 bps rate hike at the May meeting, boosted the greenback on Thursday.

The Russo-Ukraine conflict worsens as the days advance, and a cease-fire seems unlikely. Albeit talks continued online, Ukraine’s Foreign Minister stated that there had not been any progress. On the Russian side, reports emerged that Ukraine’s struck a Russian warship in the Black Sea with missiles, while Russia’s Defense Minister added that the Moskva -its flagship fleet- had sunk, meaning escalation remains.

Aside from geopolitics, Fed speaking continued during the day, led by the New York Fed President John C. Williams. He said that a 50 bps increase in May is a “reasonable” option, but the pace of hikes will depend on the economy. Williams reiterated what Fed’s Governor Brainard said that the Fed needs to move “expeditiously” to more normal policy levels ad above neutral.

Meanwhile, as shown by Short-Term Interest Rates (STIRs), money market futures illustrate that the chances of a 50 bps rate hike to Federal Funds Rates (FFR) at the next FOMC meeting lie at 94% probability.

On Friday, the Japanese and US economic docket remains empty in the observation of Good Friday.

USD/JPY Price Forecast: Technical outlook

USD/JPY price portrays an inverted hammer followed by a regular hammer in an uptrend in the daily chart, meaning the uptrend is overextended. The Relative Strength Index (RSI) at 80.91 reached a lower high while the USD/JPY reached a new YTD high at 126.31, meaning a negative divergence is forming.

The USD/JPY first resistance would be 126.00. Once cleared, the following supply zone would be the YTD high at 126.31, followed by April 2015 cycle highs at 126.85.

If the pair corrects downwards, the USD/JPY’s first support would be the March 25 daily high at 125.10. A breach of the latter would expose 124.00, and then the April 5 daily high at 123.67.