USD/JPY pulls back from 112.00 as the dollar's rally loses steam

The greenback is pulling back to the 111.50 area on Thursday’s US trading session, retreating from 7-month highs right above 112.00. The pair gives away ground, after having rallied for six consecutive days, amid mixed US data and month-end closing movements.

The US dollar consolidates gains at multi-month highs

The greenback seems to be consolidating gains after having surged to multi-month highs against its main rivals. In the bigger picture, however, the USD/JPY remains biased higher, buoyed by the widening yield curve differential between the US and Japan with the Federal Reserve expected to start tapering its bond-buying program before the end of the year.

On the macroeconomic front, the US calendar has shown mixed readings. The weekly jobless claims have posted their third consecutive increase, with 362,000 new claims in the week of September 25, which might have dented US dollar strength.

On the positive side, the US Gross Domestic Product expanded at a 6.7% pace in the second quarter, a tick up from the 6.6% increment previously estimated.

USD/JPY: dips lower expected to hold in the 111.35/110.90 bracket – Commerzbank

The ongoing USD reversal is likely to be short-lived, according to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, who sees the pair biased towards 114.55: “USD/JPY has eroded the July high at 111.66 and is well-placed to challenge the more important 112.23/50 zone, which represents highs since 2019. This may take a couple of attempts to clear, but above here will introduce scope to 114.55 the October 2018 high.”

Technical levels to watch