- USD/JPY corrected sharply from over a two-decade peak touched earlier this Thursday.
- The intraday corrective slide managed to find some support near the 23.6% Fibo. level.
- The technical set-up warrants some near-term consolidation before the next leg up.
The USD/JPY pair witnessed an intraday turnaround from its highest level since February 2002, around mid-134.00s touched earlier this Thursday and snapped a four-day winning streak. The corrective pullback extended through the first half of the European session and dragged spot prices to a fresh daily low, around the 133.40-133-35 region in the last hour.
A softer tone around the US Treasury bonds yields kept the US dollar bulls on the defensive and acted as a headwind for the USD/JPY pair. Apart from this, extremely overbought conditions on the daily chart prompted traders to take some profits off their bullish positions. That said, a goodish rebound in the US equity markets undermined the safe-haven Japanese yen.
Apart from this, a big divergence in the monetary policy stance adopted by the Fed (hawkish) and the Bank of Japan (dovish) helped limit losses for the USD/JPY pair. Spot prices found some support in the vicinity of the 23.6% Fibonacci retracement level of the 129.51-134.56 latest leg up, around the 133.30 area, which should now act as a pivotal point for traders.
Some follow-through selling, leading to a subsequent break through the 133.00 mark, would expose the 38.2% Fibo. level support, near the 132.65-132.60 area. Failure to defend the said support could drag the USD/JPY pair further towards the 132.00 mark, or the 50% Fibo. level, which if broken decisively should pave the way for a deeper corrective slide.
On the flip side, the 134.00 mark might now act as an immediate strong resistance ahead of the daily top, around the mid-134.00s. Sustained strength beyond should allow the USD/JPY pair to reclaim the 135.00 psychological mark and test the 2002 high, near the 135.15 region. That said, overstretched technical indicators warrant some consolidation before the next leg up.