USD/JPY Analysis: 50% Fibonacci Retracement, Yield Curve Capping Advances

• US yield curve depressed, caps upside
• Resistance at 113.00 a tough nut to crack 
• Awaiting US Non-Farm Payrolls data

On the back of an impulsive 3-week long selling wave in Nov, the pair found a temporary bottom just ahead of 111.00 at the end of Nov, before the combination of profit-taking and buyers stepping in to accumulate longs led to a fairly abrupt bounce toward the 113.00.

The aforementioned resistance at 113.00 represents a significant roadblock disallowing further progress for now, as it intersects w/ the 50 percent fib retrac from the Nov decline, in confluence with the previous swing low from last Oct 27th, reinforcing the case for large offers resting overhead.

Additional rises in the USD/JPY are well justified if one judges the current state of affairs in US equities, where benchmark indexes have been making fresh records highs, coupled with a retreat in Gold long positions, mainly on recent tax bill-led USD strength. However, that is only half the equation, with the present US vs JP yield curve screaming to be cautious, as it makes fresh trend lows, last at 0.34 percent, communicating a fairly pessimistic view over the mid-term outlook for the US economy. 

Shifting the focus toward the US vs JP 10yr yield spread, while the picture improves, it certainly doesn't back further increases in value, as the spread keeps trading in the low end of a tight range, last at 2.31 percent. The upcoming US NFP report on Friday will move the needle in either direction, with a break of either 112.00 to the downside or 113.00 to the upside needed to get new technical stimulus. 

Reading the most recent price action and volume flows, the 2 successive rejections off 113.00, as seen by the long-tailed daily bars, combined with Tue's 2nd test on low volume, suggests that a break of the most recent lows at 112.43 could lead to a setback worth over 40 pips before bids potentially absorb the imbalance. On the other hand, a break and acceptance above the key 113.00 would be evidence that negates this scenario.