USD/JPY is expected to consolidate with a bearish bias after hitting a 12.5-year high of 125.07 on Tuesday. It is undermined by weaker dollar sentiment (ICE spot dollar index last 95.92 versus 97.42 early Tuesday) after bigger-than-expected 0.4% decrease in US April factory orders (versus forecast -0.1%), a fall in the US ISM-NY Current Business Index to 54.0 in May from 58.1 April, a drop in the US IBD/TIPP Economic Optimism Index to 48.1 in June from 49.7 In May, and a comment from Fed's Brainard that Q1 soft data raised some troubling questions and don't support an immediate liftoff in rates. USD/JPY is also weighed by diminished investor risk appetite (VIX fear gauge rose 1.93% to 14.24, S&P 500 closed 0.10% lower at 2,109.6 Tuesday) and Japan's exports. But USD/JPY losses are tempered by higher US Treasury yields (10-year rose 7.4 bps to 2.266% overnight) as bond prices tumbled broadly on a fresh sign of waning deflation threats in the eurozone; demand from Japanese importers and ultra-loose Bank of Japan's monetary policy.
Technical comment: The daily chart is mixed as the MACD is bullish, 5 and 15-day moving averages are advancing, but bearish outside-day-range pattern was completed on Tuesday, stochastic is turning bearish at overbought levels.
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 123.60 and the second target at 122.90. In the alternative scenario, short positions are recommended with the first target at 125.25 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 125.80. The pivot point is at 124.55.
Resistance levels: 125.25 125.80 126
Support levels: 123.60 122.90 122.50