FX.co ★ Technical analysis of USD/JPY for July 27, 2016

USD/JPY is expected to trade with bullish bias. The pair posted a rebound this morning turning the intraday outlook to bullish. Currently, it has broken above the upper Bollinger band as those bands are widening, calling for an acceleration to the upside. At the same time, the 20-period (30-minute chart) crossed above the 50-period one while the intraday relative index is approaching the overbought level of 70, indicating upward momentum for the pair. The newly-developed bullish bias is expected to bring the pair up to the first upside target at 106.35. The key support is located at 104.95.

Market Commentary:

On Tuesday, US stocks ended mixed after trimming losses seen earlier in the session, as the US Federal Reserve started a two-day meeting to discuss interest rates. The Dow Jones Industrial Average edged down 19 points or 0.1% to 18,473, the S&P 500 added less than 1 point to 2,169, and the Nasdaq Composite was up 12 points to 5,110.

European stocks were positive with the STOXX Europe 600 gaining 0.1%. Germany's DAX increased 0.5% while the UK's FTSE 100 was up 0.2%.

Nymex crude oil continued on its downtrend falling 0.5% to $42.92 a barrel. Gold rebounded 0.4% to $1,319 an ounce and silver climbed 0.5% to $19.62 an ounce. The benchmark 10-year US treasury yield declined to 1.561% from 1.571% on Monday.

On the US economic data front, the Markit Services PMI dropped to 50.9 in July, according to preliminary estimates, (vs. 52 expected) from 51.4 in June, while the Composite PMI edged up to 51.5 in July from 51.2. The Consumer Confidence Index remained relatively stable at 97.3 in July (vs. 96 expected). The Richmond Federal Manufacturing Index jumped to 10 in July (vs. -5 expected) from -10 in June. Separately, new home sales increased to 592,000 units in June (vs. 560,000 units expected) from 572,000 units in May.

Regarding forex trading, the Japanese yen strengthened against other major currencies yesterday as expectations for the Japanese authorities to launch immediate and huge stimulus measures faded. USD/JPY plunged over 1.6% down to 103.98 before closing at 104.64, down 1.1% on day. EUR/JPY fell 1.2% to 114.88 and GBP/JPY was down 1.1% to 137.41.

The British pound was under pressure yesterday as Martin Weale, a member of Bank of England's monetary policy committee, said in a Financial Times interview that the latest UK purchasing managers' data was a lot worse than he thought and would be very material for the central bank's next policy meeting. GBP/USD touched 1.3055 on the downside before closing at 1.3127, down 0.1% on day.

Recommendations:

The pair is trading above its pivot point. It is likely to trade in a wider range as long as it remains above its pivot point. Therefore, long positions are recommended with the first target at 106.35 and the second one, at 106.75. In the alternative scenario, short positions are recommended with the first target at 104.50 if the price moves below its pivot points. A break of this target is likely to push the pair further downwards, and one may expect the second target at 103.95. The pivot point is at 104.95.

Resistance levels: 106.35, 106.75. 107.15

Support levels: 104.50, 103.95, 103.30