A combination of factors pushed USD/JPY higher for the third successive day.
The formation of a rectangle points to indecision over the near-term direction.
Investors now eye US consumer inflation figures for some meaningful impetus.
The USD/JPY pair held on to its intraday gains through the first half of the European session and was last seen hovering near daily tops, just above the key 110.00 psychological mark.
The underlying bullish sentiment in the financial markets undermined demand for the safe-haven Japanese yen and pushed the USD/JPY pair higher for the third successive day. Bulls further took cues from a modest uptick in the US Treasury bond yields, though a subdued US dollar price action kept a lid on any further gains.
Looking at the broader technical picture, the USD/JPY pair has been oscillating in a narrow trading band over the past four weeks or so. This constitutes the formation of a rectangle on the daily chart and points to indecision among traders over the pair’s near-term direction, warranting some caution before placing aggressive bets.
Meanwhile, technical indicators on the said chart are holding with a mild positive bias but, so far, have struggled to gain any meaningful traction. Investors seemed reluctant amid uncertainty over the likely timing of the Fed’s tapering plan and ahead of Tuesday’s release of the latest US consumer inflation figures.
Hence, any subsequent move up might continue to confront stiff resistance near the 110.30-35 supply zone, or the top boundary of the mentioned trading range. A sustained strength beyond will mark a fresh bullish breakout and set the stage for additional gains, towards the next relevant resistance near the 110.55-60 region.
Some follow-through buying has the potential to lift the USD/JPY pair beyond August monthly swing highs, near the 110.80 region, towards reclaiming the 111.00 mark for the first time since July 5.
On the flip side, the 109.60-55 horizontal zone continue to protect the immediate downside ahead of the trading range support near the 109.45 area. A convincing breakthrough will shift the bias in favour of bearish traders and turn the USD/JPY pair to accelerate the slide further towards the 109.00 round-figure mark.