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Technical analysis of USD/JPY for May 18, 2016


USD/JPY is expected to trade in a higher range as the bias remains bullish.Overnight US stocks gave back the prior session's gains, with the Dow Jones Industrial Average falling 1.0% to 17529, the S&P 500 losing 0.9% to 2047, and the Nasdaq Composite down 1.3% to 4715. Investors were discouraged by stronger-than-expected CPI growth in the US (+0.4% month-on-month in April, the biggest gain since February 2013, vs +0.3% expected and +0.1% in March), which boosted expectations for the Federal Reserve to keep raising interest rates.

Consumer staples and utilities performed the worst. Home Depot (HD) dropped 2.5% despite the fact that the company raised its sales and profit guidance for the year after better-than-expected Q1 earnings.

Nymex crude oil rose another 1.2% to $48.31 a barrel, gold gained 0.5% to $1,280 an ounce, and the benchmark 10-year Treasury yield edged up to 1.759% from 1.752% in the previous session.

Upon the release of the US inflation data, the US dollar stabilized after weakening against other major currencies earlier in the session. EUR/USD edged down 5 pips to 1.1311, while GBP/USD rose 0.5% to 1.4462 (day-high at 1.4524). USD/CHF gained another 0.3% to 0.9801. Meanwhile, USD/JPY climbed 0.1% to 109.12 (day-high at 109.64).

The Australian and New Zealand dollars pared some gains they had made against the greenback at the session's beginning, with AUD/USD rising 0.5% to 0.7322 (day-high at 0.7366) and NZD/USD increasing 0.3% to 0.6805 (day-high at 0.6842).

The pair rose to 109.64 yesterday before entering a consolidation. Although it is currently trading below both the 20- and 50-period moving averages and the intraday relative strength index has broken below the neutrality level of 50, indicating the possibility of a continued consolidation, the level at 108.65 still holds as the key support. In case the pair emerges on the upside upon completing the consolidation and leaves the key support intact, it should return to the immediate resistance at 109.65 and in extension re-test 110.50.

Trading Recommendation:

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. Therefore, long positions are recommended with the first target at 109.65 and the second one, at 110.50. In the alternative scenario, short positions are recommended with the first target at 108.20 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 107.40. The pivot point is at 108.65.

Resistance levels: 109.65, 110.50, 110.95

Support levels: 108.20, 107.40, 107

The material has been provided by InstaForex Company -