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  • USD/JPY clocked a 13-month high of 113.96 in Asia.
  • The oversold JPY could catch a bid wave if Italian fiscal concerns weigh on the European equities.

The USD/JPY is solidly bid around 113.90 in early Europe, having clocked a 13-month high of 113.96 in Asia.

The growing divergence between the Fed and the BOJ indicates the path of least resistance is to the higher side. Add to that, the pennant breakout on the monthly chart, and the prospects of a stronger rally toward 115.00 appear high.

However, the 14-day relative strength index (RSI) is indicating the low-yielding JPY is oversold for the first time since mid-July. As a result, it could pick up a strong bid in the next few hours, if the Italy-Germany yield spread rises sharply, pushing the European stocks lower.

On the other hand, the JPY selling may continue, yielding a convincing break above 114.00 in USD/JPY if the European equities report gains. In the US session, the pair may also take cues from the US ISM non-manufacturing release.

USD/JPY Technical Levels

Resistance: 114.37 (May 2017 high), 114.49 (July 2017 high), 114.74 (November high)

Support: 113.61 (daily low), 113.17 (200-week moving average), 113.00 (psychological level)