Fundamental Overview:
USD/JPY is expected to trade in a higher range. It is underpinned by stronger dollar sentiment (ICE spot dollar index last 94.12 versus 93.29 early Monday), helped by San Francisco Fed research paper that says the initial annualized growth by 0.2% reported for Q1 has actually understates the economy's true strength. It contends "residual seasonal" factors that are in play with the headline weakness, masking what the regional Fed branch estimates the growth of 1.8%. USD/JPY is also supported by higher US Treasury yields (10-year rose 9.2 bps to 2.233% Monday) and reduced safe-haven appeal of the yen amid positive risk sentiment (S&P 500 hit record high 2.131.78 before closing up 0.3% at 2,129.2 overnight), demand from Japan importers, and ultra-loose Bank of Japan's monetary policy. But USD sentiment is dented by the surprise drop in the US NAHB housing market index to 54 in May from 56 in April (versus forecast for rise to 58). USD/JPY gains are also tempered by Japan export sales.
Technical comment:
The daily chart is mixed as the MACD and stochastics are turning bullish, but five- and 15-day moving averages are meandering sideways.
Trading recommendations:
The pair is trading above its pivot point. It is likely to trade in a wider range as long as it remains above its pivot point. As long as the price holds above its pivot point, long positions are recommended with the first target at 120.15 and the second target at 120.35. In the alternative scenario, short positions are recommended with the first target at 119.30 if the price moves below its pivot points. A break of this target is likely to push the pair further downwards, and one may expect the second target at 119.05. The pivot point is at 119.50.
Resistance levels:
120.15
120.35
120.75
Support levels:
119.30
119.05
118.75
