USD/JPY in search of a firm direction, stuck in a narrow range

The USD/JPY pair reversed an early dip to the 112.00 neighborhood and now seems to have entered a consolidation phase within a 15-pips narrow trading range. 

Currently trading around the 112.20-15 region, the pair lacked any firm directional bias and has failed to build on overnight strong recovery move from 3-week lows, despite a strong follow through US Dollar buying interest. 

A mildly softer tone around the US Treasury bond yields and the prevalent cautious tone around equity markets, which tends to benefit the Japanese Yen's safe-haven appeal, has been contributing towards keeping a lid on the pair's up-move. 

From a technical perspective, the pair's overnight recovery clearly indicated the bulls ability to defend the very important 200-day SMA. Hence, a follow through up-move, led by additional short-covering, now seems a distinct possibility.

On the economic data front, the release of import/export prices, industrial production and capacity utilization data are due for release from the US. Later during the day, a scheduled speech by Philadelphia Fed President Patrick Harker might also help traders grab some short-term trading impetus. 

Technical levels to watch

On a sustained momentum above 112.30 level, the pair is likely to jump towards 112.60 horizontal level before eventually darting towards the 113.00 handle. Alternatively, weakness back below the 112.00 handle might find support near the 111.80-75 region, below which the pair could fall to its next support near mid-111.00s.

   •  USDJPY: Scope for Japanese politics to get some traction in the currency markets - HSBC