USD/JPY Forecast: Bulls Need A Close Above 113.09

The bulls need progress soon... the spot needs to close above 113.10 else the technical recovery from the low of 110.84 could fall apart.

As of writing, the USD/JPY spot is trading at 112.65; up 0.20 percent on the day. The USD was solidly bid yesterday on the back of tax reform optimism and the resulting rise in the US 10-year treasury yield. Also, record highs in the US stocks underpinned the USD. Hence, the spot rose to 113.09.

However, to everybody's surprise, the pair fell back to 112.38, tracking the decline in the Treasury yields in the late NY session.

Daily chart

Source: Netdania

The above chart shows-

• Yesterday's decline from 113.09 to 112.38 has established a falling tops pattern. A bearish follow-through/failure to move above 113.00 today could mean the technical recovery from the low of 110.84 has ended.
• A daily close today above 113.09 today would amount to a bullish outside day/engulfing pattern. It would signal a continuation of the rally from 110.84 levels and could yield 114.00 levels as discussed here.
• On the downside, at least two consecutive daily closes below the 5-day MA would open up downside toward the recent low of 110.84.

Focus on US ISM non-manufacturing - A better-than-expected headline number, coupled with a strong employment subindex would be USD positive. However, as discussed above the pair needs to close above 113.09.

On the other hand, a weak data could spell disaster as the pair is already on the back foot, as indicated by the decline from 113.09 to 112.38 despite tax reform optimism and record highs in stocks.