USD/JPY drops back below 113 ahead of US data, Powell

• Rally underpinned by broad USD strength and risk-on rally in the European equities.
• Bulls take a breather ahead of the US housing data and Powell Part 2.0.

USD/JPY is seen lock-stepping in the US dollar moves, as the US dollar dynamics remains the main driver across the fx space so far this Wednesday.

Over the last hours, the USD bulls appear to have taken a breather after the extensive rally to fresh three-week tops of 95.39, following Fed Powell’s optimistic outlook on the US economy and interest rates.

The latest leg down in the spot can be also attributed to a round of profit-taking heading into the US housing data and Fed Chair Powell’s testimony round 2.  

However, from a broader perspective, the USD/JPY pair looks set to test the 2018 high at 113.39 amid escalating US-China trade concerns, which makes the US dollar more attractive as the world’s reserve currency while Treasury yields have stalled their rise.  

USD/JPY Technical Levels

Slobodan Drvenica at Windsor Brokers, noted: “Bulls are looking for a retest of 2018 high at 113.38 (08 Jan) and Dec 2017 highs at 113.63/74 in extension.
On the other side, overbought daily RSI and slow stochastic, with bearish divergence developing  on 14-d momentum, warn of correction, but still without firmer signals. Extended dips should find footstep above higher low at 112.19 (16 July trough) to keep bulls intact and avert risk of deeper correction on break. Res:  113.13; 113.38; 113.63; 113.74. Sup:  112.83; 112.61; 112.19; 111.79.”