USD/JPY tackles 115.00 post-US data, targets 115.68 barrier

Currently, USD/JPY is trading at 115.22, up +0.51% on the day, having posted a daily high at 115.28 and low at 114.40.

Despite the bearish bias, the USD/JPY seems to be back on the winning track after yesterday's Fed's Yellen hawkish tone; at least in the short-term. Furthermore, the US docket delivered more positive US data to boost further dollars gains. The currency pair continues its recovery path from a critical support level at 112.56.

Initial Jobless Claims printed a positive figure beating consensus expectations at 234K from the expected 254K and lower from the previous 249K report.

Is inflation around the corner?

Barbara Rockefeller, President at Rockefeller Treasury Services, notes that the rise in US yields on the inflation report and Yellen's comments were a welcome relief from asset prices responding willy-nilly to careless tweets from a jackass. We must admit the market chose to hear only the parts of Yellen's remarks that reinforced what traders were already feeling—inflation is coming faster than we thought and we need to start pricing in more rates hikes or at least earlier ones.

USD/JPY analysis: upward correction not enough to confirm a bottom

She further writes, "What Yellen actually said was more sedate. Yellen said she expected rate hikes to continue "a few times a year" until it the neutral rate is reached, probably around end-2019. Nobody noticed that "end-2019" thing or the remark that monetary policy takes a long time to get a grip. They did hear that waiting too long "could risk a nasty surprise down the road -- either too much inflation, financial instability, or both. In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession."

Technical levels to watch

Immediate upside resistance is found around 115.80 (50-SMA), 116.20 (horizontal resistance) and above that at 117.00 (psychological mark). To the downside, supports are aligned at 114.39 (low Jan.19), and below that at 112.56 (low Jan. 18).

On the long term view, to sustain the current dollar recovery USD/JPY has to challenge the next upside barrier at 115.68 (long-term 61.8% Fib) and later 118.00 round figure. If prices cannot close and open above the 115.00 level, then the selling pressure would drag lower the pair towards its previous short-term bottom at 112.56 not too far from 112.47 (long-term 50.0% Fib). At that point, the level 111.11 (short-term 61.8% Fib) becomes the most logical support that bears would be willing to target and test. 

USD/JPY Forecast: Falling channel intact despite bullish engulfing pattern