USD/JPY is higher in today’s trading, holding near the 112.84 level, up 0.82% over Monday’s North American close. Today’s bounce comes on the heels of Monday’s move to the downside in the pair.
However, that pullback found support at the former rally high established in late May at 111.45. Yesterday’s low, by comparison, was at 111.36. Continuing to hold this former level of resistance would keep the pair well-positioned for a breakout to new highs over the near term.
Given the resilience exhibited by the dollar, corrections in USD/JPY should remain limited. The dollar is being supported by the ongoing expectations for an interest rate increase at the December FOMC meeting, as well as the prospects for higher inflation under the Donald Trump administration. At present, fed fund futures are pricing in a 98.2% probability of an interest rate increase at the December 13-14 meeting, up from 93.5% on Friday.
On a breakout above the November high at 113.90, the target becomes the highs established in mid-February and early March, near the 114.445-114.876 zone.
However, should sellers step back in, resulting in a break below the now reinforced support, the next level to watch for potential support is at 110.270, representing the November 22nd intraday low, followed by 108.550, November 17th’s intraday low. The next key level of support, however, does not come into play until the July rally high at 107.494. At present, however, the probabilities appear to favor at least a retest of the recent high, rather than another turn to the downside and break of near term support.
Today’s advance in USD/JPY comes following the release of Japan’s unemployment rate, which was steady at 3% in October, as well as retail sales. Japanese retail sales declined for an eight month in a row in October, although the decline was much smaller than expected. Retail sales fell at an annualized 0.1% last month, following a 1.7% drop in September. A median estimate of economists called for a 1.5% year-over-year decline.
Later in today’s session, the second estimate of US Q3 GDP will be released. Economists expect the figure to be revised up to 3.0% from the first reading of 2.9%. Also today in the US, November consumer confidence is on the calendar. This month, expectations are for a reading of 100, up from 98.6 in October.