Overview:
USD/JPY is consolidating after hitting 20-month high of 84.48 on Monday. The rate is underpinned by yen-funded carry trades amid improved risk sentiment (VIX fear gauge eased 3.88% to 16.34; S&P rose 1.19% overnight) as signs of progress in U.S. budget talks raised hopes that the U.S. fiscal cliff of tax hikes and spending cuts can be averted. USD/JPY is also supported by demand from Japan importers and investment trusts; pressure from new LDP government on the Bank of Japan for more aggressive monetary easing - BOJ's scheduled policy statement Thursday is widely expected to announce another expansion of the central bank's asset-purchase program. USD rose to its highest level against JPY since April 2011 on Monday, after a landslide Liberal Democratic Party victory in Japan fueled expectations for more monetary easing. Shinzo Abe, who is set to become Japan's new prime minister, pledged on Monday to increase communication with the Bank of Japan, stoking expectations he will pressure the BOJ to double its current inflation target to 2%. But USD/JPY upside is limited by weaker USD sentiment after surprise drop in NY Fed Empire State's business conditions index to minus 8.1 in December from minus 5.2 in November (vs. forecast for rise to minus 1.0); Japan exporter sales; profit-taking on yen-shorts.
Data focus:
15:00 GMT U.S. December NAHB housing market index.
Preference:
Sell below 84.2 with targets 83.6 and 83.4.
Support Resistance:
S1 - 83.61 (Monday's low)
S2 - 83.4
S3 - 83.32 (Friday's low)
Alternative scenario:
Buy above 84.2. The upside penetration of 84.2 will call for 84.4 and 84.7.
Resistance Levels:
R1 - 84.48 (Monday's high)
R2 - 84.7
R3 - 85
Technical Comment:
The pair is rebounding but stands below its previous high. USD/JPY daily chart is mixed as MACD is bullish, 5- & 15-day moving averages are rising; but stochastic turned bearish at overbought.