USD/JPY sits at monthly tops, what next?

After having hit fresh four-week highs near 111.80 levels on Tokyo-open, the USD/JPY pair has entered a phase of consolidation, which now extends into early Europe.

USD/JPY: 112 handle still on sight

The bulls take a breather after yesterday’s massive rally, triggered by hawkish comments from the FOMC member Dudley. Dudley stuck a hawkish tone in his speech, noting that he is confident that the US inflation will rebound and Fed remains on track to raise interest rates in the coming months.

Moreover, monetary policy divergence between the Fed and BOJ also remains a big positive for the spot. On Friday, BOJ reasserted in its policy meeting that it looks to keep its ultra-loose policy until its 2% price target is achieved.

Also, a risk-on rally in the Japanese stocks, following a rebound in the US hi-tech stocks, collaborated to the bullish tone seen behind the major. The Nikkei 225 index sits at two-year highs posted at 20,319.

Later today, upcoming Fedspeaks and broader market sentiment will drive the USD/JPY price-action, in absence of significant US macro releases.

USD/JPY Technical levels                 

Jim Langlands at FX Charts offers technical levels for the spot: “The 4 hour/daily momentum indicators are now aligned to look positive, and above the Fibo resistance which coincides with the 111.59 high would open the way to 111.70 and to 111.82/90, which should be decent resistance, but beyond which could head towards 112.15/20.”

“The downside will find bids at around 111.00, below which could see a return to 111.65/75 although this seems unlikely today, but a break of which would then head towards 110.30 and possibly back to 110.00,” Jim adds.