USD/JPY: bulls in control in Tokyo testing key 111.20 resistance

Currently, USD/JPY is trading at 111.20, up +0.35% on the day, having posted a daily high at 111.24 and low at 110.99.

The market has recovered from the post N.Korean missile tests news of last week and has shrugged off the data misses in the retails sales IP number from Friday's US closing session. US treasuries were playing their part in buoying USD/JPY on Friday and above the mid-way point of the 110 handle, leaving the yen as the worst performer on the US session. The market appears to be risk-on and continuing with the bullish theme on Wall Street on Friday 

Wall Street closes higher despite poor US data

In respect of yields price action, US 10yr yields initially rose from 2.18% and moved to 2.20% by the close, fluctuating between 2.18% and 2.21% during the London and New York session. 2yr yields were up from 1.36% to 1.38%. Fed fund futures yields were also bullish for the dollar, firming up from a prior 51% chance of a rate hike in December to 56%, despite the retails sales event sighted as a possible markdown for GDP Q3 forecasts. 

The week ahead: Fed to announce the start of its balance sheet roll-of? - Nomura

For the week ahead, the key for this major in the week ahead will be the outcome of not just the FOMC and the expected balance sheet reduction announcements, but from the White House's progress over a bipartisan fiscal stimulus deal. 

USD/JPY levels

Should such an outcome develop form thw White house this week or a particularly hawkish FOMC keeping Fed hikes on the table, this could make a fundamental case for a bullish breakout through 112.20 resistance and expose space to the 114 handle exposing July highs at 114.49 again. To the downside, however, the previous downtrend which is now acting as support at 109.45 guards the 108.13 April low and the recent low at 107.32.

Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart, technical indicators present clear bearish divergences form price action, posting lower lows as the price advances since mid week, but still above their mid-lines, which limits the case for a steeper downward move. "The 100 SMA in this last time frame aims modestly higher, still below the 200 SMA, both over 100 pips below the current level," Valeria noted.