USD/JPY awaiting further catalysts, stuck below 114.40 cap

• USD/JPY closed the NY session +0.44%.
• 114.40 becoming a critical resistance.

Currently, USD/JPY is trading at 113.68, up 0.44% on the day, having posted a daily high at 113.75 and low at 112.96.

The US dollar index is unchanged on the day while USD/JPY rose from 113.00 to 113.73 and then settled between there and 113.60 for the majority of the day. It was an uneventful session where US 10yr treasury yields took a breather and ranged sideways between 2.36% and 2.38%, while 2yr yields rose from 1.57% to 1.59%. The Fed fund futures yields still price the chance of a December rate hike at 96%. 

Eyes on US yields

US yields remain the driving force in the pair and analysts at Westpac explained that they have been rising so far in Q4. "The US 10yr yield has risen about 30bp on average in Q4 in the post-crisis era. The timing of Fed hikes will have something to do with that, the Fed’s first two hikes in this cycle occurring in December of 2015 and 2016. But the phenomena goes back much further too, with US yields having risen in Q4 in 17 of the past 25 years," the analysts noted.

In respect to the BoJ overnight, rates were left on-hold, however, core inflation is now seen by them bank rising by 0.8%, down from previous 1.1%, while for 2018 it was downgraded from 1.5% to 1.4% while the BoJ is still targetting their 2% inflation target by the beginning of the 2019 fiscal year.

USD/JPY levels

• Support levels: 113.25 112.90 112.50
• Resistance levels: 114.05 114.40 114.85

Valeria Bednarik, chief analyst at FXStreet explained that the 4 hours chart shows that the pair bottomed around its 100 SMA, while technical indicators recovered from oversold readings. "The pair is quite sensitive to US data, which means some action is expected during the upcoming days, with 114.40 becoming a critical resistance after the pair topped in the region for a third month in the year this October," Valeria added.