USD/JPY review: Bulls defended 38.2% retracement support on renewed hopes of US-China trade talks

• The US stocks dropped yesterday, pushing the USD/JPY lower to 111.16 (38.2% Fib R of 110.38/111.65).
• The pair bounced off the key Fibonacci support on renewed hopes of US-China trade talks.
• Better-than-expected US CPI could help the USD/JPY scale the previous week’s high of 111.76.

Currently, the USD/JPY is trading at 111.38, having printed a high and low of 111.46 and 111.17, respectively.

The currency pair fell yesterday as Wall Street was weighed down by the losses in Apple. Further, the 10-year treasury yield backed off to 2.95 percent from the one-month high of 2.98 percent clocked on Wednesday.

However, the bears failed to penetrate the support at 111.16 (38.2% Fib R of 110.38/111.65) likely due to the optimism generated by the renewed hopes of US-China trade talks and the resulting uptick in the Asian equities.

While the rebound from 111.16 is encouraging, it is still early to call a bull breakout. Moreover, only a convincing move above 111.76 (previous week’s high) would put the bulls back into the driver’s seat and could allow a rally to 113.26 (200-week moving average).

That said, the spot may find acceptance above 111.76 in the next 24 hours, if the US consumer price index (CPI) for August, scheduled for release at 12:30 GMT, prints well above the estimate of 0.3 percent, reinforcing the calls for faster Fed rate hikes.

Weekly chart

A weekly close above 111.76 would add credence to previous week’s doji candle and the breach of the long-term descending trendline drawn from 2015 lows and would open up upside towards 113.26.

Resistance: 111.83 (Aug. 29 high), 112.15 (Aug. 1 high), 1113.18 (July 19 high)

Support: 111.16 (38.2% Fib R of 110.38/111.65), 110.68 (Aug. 31 low), 110.38 (Sep. 7 low)