FxWirePro: USD/JPY bulls exhausted at 1H 200-MA, scope for downside builds

Fundamental Factors:

• Bid tone around the US dollar strengthened in the late North American session following Yellen’s hawkish comments.
• Data released overnight showed US inflation in 2016 rose at fastest rate in 2016.
• Higher inflation could force the Fed to hike rates at a faster rate, unless wage growth keeps up with rising costs.
• Consequently, USD/JPY bounced off lows near 112.57 to close above 114 on Wednesday's trade.
• Upside in USD/JPY seems to lack traction. The pair failed at 1H 200-MA at 114.88 and has edged lower to currently trade at 114.59.
• Above 1H 200-SMA we see major channel top resistance at 115.20. Only breakout above could see extension of gains.
• Markets probably realize that Yellen was slightly dovish rather than hawkish as initially perceived.
• Allianz’s El-Erian, in an interview to Bloomberg, said the stage was set for Yellen to sound hawkish, however, “she did not go there”.

Technical Analysis:

• USD/JPY rejected at 1H 200-SMA.
• RSI has rolled over from overbought levels. 
• MACD is on verge of a bearish crossover on signal line.
• Stochs are at overbought levels and biased lower.
• Confirmation from MACD and Stochs could raise scope for downside.
• On the flipside, break above 200-SMA invalidates bearish bias.

Support levels - 114.11 (5-DMA), 114, 113.97 (23.6% Fib of 98.78 to 118.66 rally)

Resistance levels - 114.82 (1H 200-SMA), 115, 115.20 (channel top), 115.98 (20-DMA)

Recommendation: We will wait for confirmation to initiate trade.

FxWirePro Currency Strength Index: FxWirePro's Hourly USD Spot Index was at -42.2345 (Neutral), while Hourly JPY Spot Index was at -24.5032 (Neutral) at 0530 GMT. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.