Bulls have to wait for the breakout through 38.2% Fibo. obstacle

• USD/JPY falls on Friday and erodes some of the overnight gains to a two-week high.
• Divergent Fed-BoJ policy expectations are proving to be a key factor exerting some pressure.
• Risk-on sentiment could undermine the safe-haven JPY and help limit any significant downside.

The USD/JPY pair is struggling to build on the previous day’s breakout momentum and attracted fresh sellers on Friday, snapping a two-day winning streak to a near two-week high. The reduction is sponsored by a modest decline in the US dollar (USD), although the prevailing risk environment could undermine the Japanese yen (JPY) and help limit deeper losses.

Investors grew upbeat after U.S. macro data on Thursday showed retail sales rose more than expected in July and a still resilient labor market eased fears of a possible recession in the biggest economy of the world. In fact, the US Census Bureau reported that the total value of retail sales in the US rose 1% in July, and ex-autos sales rose 0.4%, beating estimates for a 0.3% increase, and , respectively, 0.1%. Another report released by the US Department of Labor (DOL) revealed that there were 227,000 initial jobless claims in the week ended August 10, less than the 235,000 expected and the previous 234,000.

Traders reacted quickly and lowered expectations for more aggressive policy easing by the Federal Reserve (Fed). However, markets still see a higher chance that the US central bank will begin its rate-cutting cycle in September. This in turn triggers a further decline in US Treasury yields and acts as a headwind for the USD. The JPY, on the other hand, is getting support from Thursday’s stronger second-quarter gross domestic product (GDP) data from Japan. This could encourage the Bank of Japan (BoJ) to continue raising interest rates, which in turn is seen to put some pressure on the USD/JPY pair.

However, the lack of any significant selling warrants some caution for bearish traders and before confirming that the recent sharp recovery from the 141.70-141.65 region or the YTD low reached in July has run its course. Traders are now looking at second-level US macro data – Construction and Housing Permits, along with the preliminary Michigan Consumer Sentiment Index – for near-term opportunities later in the early North American session. However, market focus will remain glued to the minutes of the FOMC meeting, due to be released next Tuesday, and Fed Chairman Jerome Powell’s appearance at the Jackson Hole Symposium.

Technical perspectives

From a technical perspective, the strong move higher overnight weakens a resistance marked by the 38.2% Fibonacci retracement level from the July-August decline. The said barrier is fixed near the 149.35-149.40 region, which should now act as a pivotal point for traders. Sustained strength beyond could trigger a short-covering rally and allow USD/JPY to reclaim the psychological 150.00 mark. Momentum could extend further towards intermediate resistance near the 150.75-150.80 region en route to the round figure of 151.00 and the 151.50-151.70 confluence – comprising the Simple Moving Average (SMA) of 200 days and 50% Fibo. level.

On the other hand, weakness below the Asian session low around the 148.75-148.70 region could find some support near the 148.20 area. This is closely followed by the 148.00 threshold, below which USD/JPY could accelerate the decline towards the 147.30-147.25 intermediate support en route to the 147.00 round figure and 23.6% Fibo. level, around the 146.50-146.45 region. Failure to defend the said support levels could shift the short-term trend back in favor of bear traders and trigger aggressive technical selling, paving the way for a slide towards the 146.00 mark, the 145.45 area and the psychological 145.00 mark.