USD/JPY: bulls need to hold above the 110.55 level into the BoJ

• USD/JPY has been losing grip of the mid 111’s but has found support coming in at the rising 50-D SMA that meets the channel support (once resistance).
• The pair has now entered a phase of consolidation on a key week for both the  yen and the greenback.

On a slightly weaker dollar and US leg of the spread, currently, USD/JPY is trading a 110.95, a touch up fro the 110.88 low.

DXY has fallen from 94.75 highs down to 94.26 the low and is currently trading at 94.28. The benchmark US 10-yr yields are now at 2.97% from 2.99% highs.  Building up to the BoJ meeting, the yen has been outperforming nearly all of the G10 currencies on the back of a  rumored  shift in the outlook for relative central bank policy.  However, analysts at Scotiabank argued that such  expectations are running high and market participants looking to additional JPY strength may be setting themselves up for disappointment:

“We note the potential for an improvement in the BoJ’s tone on the basis of stronger wage and employment data  however  we also highlight the lack of any sustained progress toward the BoJ’s 2% inflation target. We do not anticipate any near-term adjustments to policy and look to the fall meetings (Sep/Oct) for more concrete changes. The near-term balance of risk  favors  JPY weakness and an unwind of this past week’s  rumor-driven  gains.”

FOMC coming up, but the BoJ trumps this time around

Apart from the BoJ this week, we have the FOMC statement and nonfarm payrolls. Analysts at TD Securities explained, however, that the USD will largely be dependent on event risk situated elsewhere including the BOE and BOJ meetings:

With the Fed statement expected to be a staid affair, the USD will largely be dependent on event risk situated elsewhere including the BOE and BOJ meetings. The latter is likely to be the most important of the three, with speculation running rampant for a tweak. We lean against this narrative and expect USDJPY to find tactical support.

USD/JPY levels

USD/JPY has been finding support at the daily trendline support while resistance has come on the wide at the top of the cloud around 113.00. this is a level that is guarding the 200-week moving average at 113.29. The 200-D SMA comes in as a key support below the trendline. Meanwhile, the pair has been unable to retake the 111.27  Kijun,  but is still holding above the  110.55 55-DMA support.