USD/JPY rises back toward 114.00 as US yields rise

• USD strengthens as US yields rise.
• Data ahead: Inflation in Japan, Q3 GDP in the US.

The greenback gained momentum during the American session, after the House of Representatives passed a budget blueprint, clearing the way to Trump’s tax reform and following the ECB meeting. USD/JPY bounced back toward 114.00.

USD/JPY bounces, still under 114.00

The pair yesterday reached the highest level in three months at 114.24 but failed to hold and pulled back. Earlier today bottomed at 113.31 and then turned to the upside. During the American session found support at 113.65 and rose back toward the 114.00 handle. It peaked at 114.03 but remains limited.

The move to the upside took place after the dovish ECB meeting, the advance in Trump’s tax cut and amid reports that Janet Yellen is out of the race for next Fed’s chair. US bond yields reversed and turned higher. The 10-year climbed recently back to 2.45% from 2.40%, offering support to the dollar. The Dollar Index is up almost 1%, having the best day in months. Recently reached 94.50, the highest since mid-July. 

Inflation data from Japan will be released on Friday but the key report for the pair tomorrow will be the first estimate of US Q3 GDP, consensus forecasts point to a 2.5% reading. 

USD/JPY technical outlook

“From a technical point of view, the pair is now neutral-to-positive, as technical indicators lost upward strength, but remain within positive territory, while the price is well above its 100 and 200 SMAs, with the shortest presenting limited directional strength”, said Valeria Bednarik, Chief Analyst at FXStreet.

USD/JPY continues to move in a range, unable to consolidate above 114.00 and with support above 113.30. A clear break above 114.00 and would add momentum to the greenback while to the downside, under 113.30 the bearish correction is likely to accelerate toward 113.10 and below to 112.80.