USD/JPY surges above mid-112s on improved sentiment

The USD/JPY broke out of its recent consolidation channel during the NA trading hours and rose to a fresh session high at 112.75. As of writing, the pair was trading at 112.73, adding 0.3% on the day.

Risk appetite returns to the markets

After closing the previous day with losses, major equity indexes in the U.S. started the day higher and extended their gains as the negative impact of tax bill uncertainty on the market sentiment faded away. Republican Senator Marco Rubio, who opposed the tax bill in its latest form and demanded changes to child tax credits, on Friday said that he would vote 'yes' on the bill, according to Fox News. At the moment, the Dow Jones Industrial Average is up 0.55% while the S&P 500 is adding 0.6%. 

Moreover, the traditional safe-haven US Treasury-bonds are struggling to find demand amid the risk-on mood, pushing their yields higher and providing a boost to the greenback. The US Dollar Index is now at 93.75, up 0.12%, and the 10-year T-bond yield is gaining more than 1%.

Despite this late upsurge, however, the pair is still down nearly 100 pips on the week. The pair's heavy sell-off that was triggered after the FOMC's monetary policy announcements on Wednesday continued on Thursday, and unless today's recovery pushes the pair above 113.55, it is going to end the week lower after recording two straight positive weekly closings.

Technical levels to consider

The pair could encounter the first hurdle at 113 (psychological level/50-DMA) ahead of 113.75 (Dec. 12 high) and 114.10 (Nov. 9 high). On the downside, supports are located at 112.50 (20-DMA), 112 (psychological level) and 111.70 (200-DMA). With today's rise, the RSI indicator on the daily graph eased higher toward the 50 mark, suggesting that bears are losing strength.