• USD/JPY corrected from the two-decade high amid aggressive USD long-unwinding trade.
• The Fed-BoJ policy divergence extended some support and helped limit any further losses.
• Mixed oscillators on hourly charts warrant caution before placing aggressive bearish bets.

The USD/JPY pair came under some selling pressure on the last day of the week and eroded a part of the overnight strong gains to a fresh two-decade high. The pair remained on the defensive through the first half of the European session, albeit managed to rebound a few pips from the daily low and was last seen trading just below mid-130.00s.

The US dollar witnessed aggressive long-unwinding trade and snapped a six-day winning streak to the five-year high. This, in turn, was seen as a key factor that exerted downward pressure on the USD/JPY pair. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and the Fed helped limit the downside.

From a technical perspective, the intraday downtick stalled near the 129.75 region, or the 50-hour SMA. The said area coincides with the 38.2% Fibonacci retracement level of the strong gains recorded over the past two trading sessions. This, in turn, should act as a pivotal point and help determine the USD/JPY pair's intraday move.

Technical indicators on intraday charts - though have been losing positive traction - are yet to confirm a bearish bias. This makes it prudent to wait for sustained break below the aforementioned confluence support before confirming that the USD/JPY pair has topped out and positioning for any meaningful corrective pullback.

Spot prices could then accelerate the decline towards testing the 50% Fibo. level support, around the 129.00 round-figure mark. The downward trajectory could further get extended towards the 61.8% Fibo. level, around the 128.60-128.55 region, which coincides with the 200-hour SMA and should act as strong base for the USD/JPY pair.

On the flip side, immediate resistance is pegged near the 130.75 area ahead of the 131.00 round-figure mark and the post-BoJ swing high, around the 131.25 region. Sustained move beyond the said barriers will be seen as a fresh trigger for bullish traders and set the stage for an extension of a near two-month-old bullish trend.

USD/JPY 1-hour chart

Key levels to watch