USD/JPY eases to 114.15 area after hitting long-term highs at 114.70

The US dollar has pulled pack after hitting fresh five-year highs at 114.70 pm Wednesday, to consolidate in the lower range of 114.00. The pair has turned negative on daily charts, although the near-term trend remains positive, after having rallied nearly 5% over the last four weeks.

The USD loses steam on higher appetite for risk

The JPY is taking advantage of a somewhat softer US dollar on Wednesday, weighed by a positive market sentiment. Wall Street’s indexes are trading with moderate advances for the second consecutive day; the Dow Jones is 0.49% up, the S&P 500 appreciates 0.39% and the Nasdaq Technical Index advances 0.66%, on the back of the release of upbeat quarterly earnings results on the Healthcare sector.

Investors’ optimism and the pause on US bond yields' rally have dented demand for the dollar, allowing most majors to post moderate recoveries. The US Dollar Index is trading about 1% down from the 94.50, one-year high, reached last week, as investor’s expectations about monetary tightening by the Federal Reserve have faded somewhat as other major central banks start to anticipate the possibility of accelerating their monetary normalization plans to tackle inflationary pressures.

The Japanese yen, on the other hand, remains heavy on the back of an adverse monetary policy differential. Federal Reserve’s hints towards QE tapering have been widening the treasury yield gap between the US and Japan -whose central bank maintains the 10-year note near zero through a yield control curve- and has squeezed the yen’s attractiveness for the investors.

USD/JPY: Still heading towards 117.80/118.60 – SocGen

The FX Analysis team at Société Générale maintains their bullish bias on the pair, with a potential target at 117.80/118.60: “Signals of a pullback are still not visible; 110.80 should cushion (…) Next potential objectives are at 115.50 and 2016 high of 117.80/118.60.”

Technical levels to watch