• USD/JPY gains some positive traction, though remains confined in a familiar trading range.
• The mixed fundamental backdrop is seen holding back traders from placing aggressive bets.
• A convincing break below ascending trend-line support will set the stage for deeper losses.

The USD/JPY pair attracts some dip-buying near the 129.20 region on Monday and climbs to a fresh daily top heading into the North American session. Spot prices, for now, seem to have stabilized above the 130.00 psychological mark, though remain well within a familiar trading range held over the past one-and-half week or so.

A goodish pickup in the US Treasury bond yields widens the US-Japan rate differential, which, in turn, is seen weighing on the Japanese Yen (JPY) and lending support to the USD/JPY pair. That said, a weaker risk tone, along with speculation that high inflation may invite a more hawkish stance from the Bank of Japan later this year, limit losses for the JPY. Apart from this, the underlying bearish sentiment surrounding the US Dollar keeps a lid on any meaningful upside for the major.

From a technical perspective, the recent recovery from the 127.20 area, or a multi-month low touched on January 16, has been along upward-sloping trend-line support. The USD/JPY pair, however, seem to struggle to capitalize on the move beyond the 100-period SMA on the 4-hour chart. This is followed by a stiff hurdle near the 130.60-130.65 heavy supply zone, which should now act as a key pivotal point. A sustained strength beyond should pave the way for some meaningful appreciating move.

Given that oscillators on hourly charts have again started gaining positive traction, the USD/JPY pair might then aim to reclaim the 131.00 round-figure mark. The momentum could get extended further towards the post-BoJ swing high, around the 131.55-131.60 area, en route to the 132.00 mark and the next hurdle near the 132.40-132.50 region.

On the flip side, the aforementioned ascending trend-line support, currently around the 129.15 area, might continue to protect the immediate downside. Some follow-through selling below the 129.00 mark will be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable. The subsequent slide could drag spot prices to the 128.00 round figure en route to the multi-month low, around the 127.20 region.

USD/JPY 4-hour chart

Key levels to watch