USD/JPY inches higher above 113 as DXY advances toward mid-93s

After closing the previous day with a 30-pip loss around 112.70, the USD/JPY pair gained traction during the Asian trading hours and refreshed its highest level in two weeks at 113.32. As of writing, the pair is trading at 113.26, up 0.63% on the day.

The pair's upsurge seems to be fueled by a stronger greenback. On Thursday night, the US Senate approved a budget plan for the 2018 fiscal year that would allow them to advance with the tax overhaul without the support of Democrats. Following the 51-to-49 voting outcome, Senate Majority Leader Mitch McConnell said, "with this budget, we’re on a path to deliver much-needed relief to American individuals and families who have borne the burden of an unfair tax code.”

• US Senate adopts budget resolution, sets stage for tax reform

The US Dollar Index, which tested the 93 mark yesterday, retraced the majority of its recent losses and rose to 93.40. At the moment, the index is at 93.33, up 0.35% on the day. The pair could meet another buying wave and extend its daily gains when European traders hit their desks. Moreover, in case major European equity indexes recover from yesterday's sharp losses, the JPY could have a difficult time show resilience against the buck.

Later in the day, the only noteworthy data of the economic calendar will be the existing home sales from the U.S., which is unlikely to receive any significant reaction from investors.

Technical outlook

The pair faces the immediate resistance at 113.45 (Oct. 10 high) ahead of 114 (psychological level) and 114.50 (Jul. 11 high). On the downside, supports align at 112.50 (20-DMA), 112 (psychological level) and 111.40 (200-DMA). With this latest rise, the RSI indicator on the daily graph turned north above the 50 mark, suggesting that the short-term bullish momentum is building up.

• USD/JPY seen at 115.00 in 6-month – Danske Bank