USD/JPY tries to re-approach 113 on positive market sentiment

The USD/JPY pair, which tested the 113 mark in the early European session and struggled to extend its upside, eased to mid-112s before gaining traction in the NA trading hours. As of writing, the pair was trading at 112.75, up 0.2% on the day.

Although the pair added nearly 30 pips after the manufacturing PMI from the U.S. came is stronger-than-expected, recent dovish comments from Minneapolis Fed President Kashkari triggered a short-lived USD sell-off and capped the pair's gains. In an essay, Kashkari argued that the Fed's policy tightening was the reason behind the soft inflation and noted that he wouldn't want the Fed to raise rates until the core PCE inflation reached the target 2% rate. Nevertheless, the US Dollar Index is not too far from its 6-week top of 93.51 that it set earlier as it's now up 0.57% at 93.43.

• Fed's Kashkari: Fed's policy tightening has led to low inflation

In the meantime, major equity indexes in the U.S. started the week on a positive note, reflecting a positive market sentiment in the session, which makes it difficult for the traditional safe-haven JPY to find demand. At the moment, both the Dow Jones Industrial Average and the S&P 500 are at new record highs while adding 0.56% and 0.35% respectively.

The remainder of the session won't be featuring any data that could impact the price action, and the pair is likely to remain in the positive area below the 113 handle.

Technical outlook

The pair could encounter the first technical resistance at 113.00/05 (psychological level/daily high) ahead of 113.50 (Jul. 14 high) and 114.50 (Jul. 11 high). On the downside, supports align at 112.00 (psychological level), 111.45 (200-DMA) and 111.00 (100-DMA). The RSI indicator on the H4 chart is moving sideways near the 50 mark, suggesting a near-term neutral outlook for the pair.

• USD/JPY bullish, on its way to 113.80? – UOB

Today's data from the U.S.

• US: Economic activity in the manufacturing sector expanded in September - ISM
• US: September PMI signals further improvement in manufacturing conditions - Markit
• US: Construction spending during Aug 2017 was estimated at an annual rate of $1,218.3 bln