FX.co ★ USD/JPY: Upside prevails

Overview:
USD/JPY is consolidating in higher range after hitting one-week low of 88.06 on Wednesday. Spotlight is on 01:45 GMT January HSBC China flash manufacturing PMI. USD/JPY is supported by yen-funded carry trades amid diminished risk aversion (S&P rose 0.15% overnight) as upbeat results from IBM and Google, plus House of Representatives vote to suspend the U.S. debt ceiling for three months boost U.S. equities and investor sentiment. USD/JPY is also supported by demand from Japan importers and investment trusts. But sentiment dented by lower-than-expected 0.6% rise in U.S. November home prices (vs. +0.7% forecast); gloomy statement from Bank of Canada as it cuts 2013 GDP forecasts. USD/JPY gains also tempered by disappointment at latest measures from BOJ to boost the economy; Japan exporter sales. USD/JPY daily chart is negative-biased as MACD and stochastic are in bearish mode; bearish parabolic stop-and-reverse signal hit at 88.35 on Wednesday.
Preference:
Buy above 88.7 with targets at 89.85 and 90.2 in extension.
Resistance levels:
R1 - 89.85
R2 - 90.18 - 90.25 band (Tuesday's high-Monday's two-and-a-half year high)
R3 - 90.4
Alternative scenario:
Sell below 88.7. Below 88.7 look for further downside with 88.35 and 88 as targets.
Support levels:
S1 - 88.35
S2 - 88.06 (Wednesday's low)
S3 - 87.79 (Jan. 16 low)
Technical comment:
The RSI broke above a declining trendline.