USD/JPY: Post-Fed minutes rally fizzles, back to test 112.50

• Bulls still eye 113 handle.
• Higher treasury yields still underpin.
• Technicals remain constructive.

Having hit the highest levels in two days at 112.78, the USD/JPY pair retreated sharply, now heading towards daily lows struck near the midpoint of the 112 handle.

USD/JPY: Awaits range-break on NFP?

Despite persisting risk-on trades seen on the Japanese indices and higher oil prices, the safe-haven Yen managed to recover some ground against its US rival, following the comments from the Japanese PM Abe on North Korean nuke threats.

Moreover, the short-covering rally spurred in the US dollar across the board, after robust US data and mildly hawkish Fed minutes, lost legs in Asia, collaborating to the renewed weakness seen around the spot.

Meanwhile, solid Japanese Dec final manufacturing PMI reading also offered the much-needed respite to the JPY bulls. Japan Dec final manufacturing PMI hit the highest since Feb 2014

However, the sentiment still remains buoyed in the major, in the wake of higher Treasury yields and bullish technical outlook. Despite the supportive factors, the USD/JPY pair is likely to remain within 112-113 range, awaiting fresh direction from the US payrolls due this Friday.

USD/JPY Technical View

Jim Langlands at FX Charts note, “the dailies seem to suggest that we are likely to see further decent support at 111.95/05, which I think will hold today, but below which would open the way to the 200 DMA at 111.65. On the other hand the short term momentum indicators are more positive and if 112.60 can be overcome we could then see a return to 112.80 and possibly on to 113.00 and above, where 113.30/35 should see sellers ahead of the December high of 113.75. Most likely a range of 112.00/113.00 would not surprise for the coming session.”