Fundamental overview: USD/JPY is expected to consolidate. It is undermined by weaker dollar sentiment (ICE spot dollar index last 95.37 versus 95.92 early Wednesday) after the ADP employment report showed fewer-than-expected 201,000 increase in US private sector jobs in May (versus forecast 215,000) and US May ISM non-manufacturing PMI which came at 55.7 (versus forecast 57.1). USD/JPY is also weighed by Japan's exporters and profit-taking on long USD positions as traders are trimming risk exposure ahead of Friday's critical US May non-farm payrolls report. But USD sentiment is soothed by the US April trade balance deficit of $40.88 billion (versus forecast $44.1 billion). USD/JPY downside is also limited by demand from Japanese importers, ultra-loose Bank of Japan's monetary policy, higher US treasury yields (10-year rose 9.4 bps to 2.360% overnight), and improved investor risk appetite (VIX fear gauge eased 4.07% to 13.66, S&P 500 closed 0.21% higher at 2,114.07 Wednesday).
Technical comment: The daily chart is mixed as the MACD is bullish but stochastics bearish is at overbought levels. Inside-day-range pattern was completed on Wednesday.
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