• USD/JPY meets with a fresh supply on Thursday amid broad-based USD weakness.
• The Fed-BoJ policy divergence should continue to act as a tailwind for the major.
• The technical set-up also favours bulls and supports prospects for some dip-buying.

The USD/JPY pair comes under some renewed selling pressure on Thursday and slips back below the mid-136.00s during the mid-European session. The pair is currently hovering around the 23.6% Fibonacci retracement level of the recent rally witnessed over the past two weeks or so.

The US dollar hits a one-week high amid some repositioning trade ahead of the Jackson Hole Symposium and turns out to be a key factor exerting downward pressure on the USD/JPY pair. Bearish traders further take cues from a softer tone surrounding the US Treasury bond yields, though the Fed-BoJ policy divergence should help limit any further losses for the major.

The positive outlook is reinforced by the fact that technical indicators on the daily chart are still holding comfortably in bullish territory. Hence, any subsequent downfall is more likely to attract some buyers near the 136.00 mark. This is closely followed by the weekly low, around the 135.80 region and the 135.65-135.55 resistance breakpoint, now turned support.

The latter marks a confluence - comprising the 50-day SMA and the 38.2% Fibo. level - and should act as a strong base for the USD/JPY pair. A convincing break below would suggest that a two-week-old positive trend has run out of steam and set the stage for further losses. The USD/JPY pair might then slide to the 135.00 psychological mark en route to the 50% Fibo. level.

On the flip side, the 137.00-137.10 region seems to have emerged as immediate resistance. Sustained strength beyond has the potential to lift the USD/JPY pair back towards the monthly high, around the 137.70 area. Some follow-through buying would be seen as a fresh trigger for bullish traders and set the stage for an extension of the positive move beyond the 138.00 mark.

USD/JPY daily chart

Key levels to watch