USD/JPY Price Analysis: Defends ascending channel support ahead of FOMC minutes

• USD/JPY staged a modest bounce from a short-term ascending trend-channel support.
• The technical set-up favours bullish traders and supports prospects for further gains.
• A sustained break below the trend-channel support will negate the positive outlook.

The USD/JPY pair attracted some dip-buying near the 110.40 region and staged a modest recovery from over two-week low touched earlier this Wednesday. The pair held on to its modest gains around the 110.65-70 region through the mid-European session, albeit lacked any strong follow-through.

The intraday uptick was supported by a mildly positive tone surrounding the US equity futures, which tends to undermine demand for the perceived safe-haven Japanese yen. That said, COVID-19 jitters, along with a subdued US dollar price action, kept a lid on any meaningful upside for the USD/JPY pair.

Investors also seemed reluctant to place any aggressive bets ahead of the release of the FOMC June meeting minutes, which will be looked upon for clues about the Fed's policy outlook. This will play a key role in influencing the USD and provide a fresh directional impetus to the USD/JPY pair.

From a technical perspective, the USD/JPY pair managed to defend support marked by the lower end of an ascending trend-channel extending from April monthly swing lows and for now, seems to have stalled its recent sharp pullback from the 111.65 region, or YTD tops touched last Friday.

Meanwhile, technical indicators on the daily chart – though have corrected from higher levels – are holding comfortably in the positive territory. This, in turn, favours bulls and supports prospects for the resumption of the prior appreciating move witnessed over the past two months or so.

That said, it will still be prudent to wait for a sustained strength beyond the 111.000 mark before placing fresh bullish bets. The USD/JPY pair might then aim back to retest YTD tops, around the 111.65 region, before accelerating the momentum further towards reclaiming the 112.00 round figure.

On the flip side, the mentioned trend-channel support, currently around the 110.40 region, might continue to protect the immediate downside. A convincing break below will shift the bias in favour of bearish traders and turn the USD/JPY pair vulnerable to prolong its recent corrective slide.

The next relevant support is pegged near the key 110.00 psychological mark, below which the USD/JPY pair might turn vulnerable to decline further towards testing the 100-day SMA. The latter is currently pegged near the 109.00 mark and should act as a strong near-term base for the major.

USD/JPY daily chart

Technical levels to watch