USD/JPY - Spinning Top candle, trapped between 23.6% Fib & 100-DMA

The Dollar-Yen pair put an end to the rising bottom formation on Wednesday as it fell to a low of 111.08 (23.6% Fib R of 108.80-111.79) before ending the day on a slightly weaker note at 111.37. At one point of time, the Dollar bulls appeared to be in control, but failed to push the pair above 111.74 levels. 

The resulting ‘spinning top’ candle stick suggests the rally from the low of 108.80 (June 14 low) has run out of steam. A bearish reversal would be confirmed if the spot suffers losses today. 

The price action over the last two days suggest, the spot is trapped in the range of 111.08 (23.6% Fib R of 108.80-111.79) and 111.16 (50-DMA). 

Slower growth in the US

Yen could remain well bid as the treasury yield curve predicts a slower growth in the US. The 2-year/30-year spread is only 1.39 bps. The long-run inflation expectations as represented by the 10-year Breakeven rate have dropped from 2% in January to 1.67%. 

Furthermore, with oil in the bear market, investors could seriously start considering the possibility of a slower Fed tightening. That could yield losses in the US dollar, although investors more likely to trade the range breakout in the USD/JPY pair. 

USD/JPY Technical Levels

A daily close above 100-DMA of 111.81 would signal continuation of the rally from 108.80 and would open doors for 112.13 (May 24 high) and 112.60 (Jan 17 low). On the other hand, a break below 111.15 (50-DMA) could yield a pullback to 110.70 (200-DMA) and 110.29 (50% Fib R of 108.80-111.79).