USD/JPY consolidates above 114.00 with upside attempts capped at 114.30

• The US dollar returns above 114.00 to stall right below 114.00.
• Risk appetite, dovish BoJ weigh on the Japanese yen.
• USD/JPY expected to appreciate towards 117.00/10 – Credit Suisse.

The dollar maintains a moderate bid tone on Tuesday, extending its rebound from the 113.40 low hit last Friday. The pair has returned to levels past 114.00, with the safe-haven yen weighed on a risk-on market, before hitting resistance at 114.30 area.

The yen weakens on risk appetite, dovish BoJ

The Japanese yen has opened the week on a soft tone on the back of a moderate appetite for risk with quarterly earnings reports triggering advances in the world’s major equity markets.

Beyond that, the market is bracing for a dovish monetary policy statement by the Bank of Japan later this week, which is adding negative pressure on the yen. With the US Federal Reserve expected to start reducing its stimulus program over the coming months, the widening yield differential between the US and Japanese Treasury bonds has been one of the main reasons behind the nearly 5% rally performed by the USD/JPY since late September.

On the macroeconomic front, US new home sales have surged 14% in September, hitting a six-month high rate of 800,000 units, well above the 760,000 units anticipated by market experts. Furthermore, the Richmond Fed Manufacturing Index has improved to 12, from -3 in the previous month, with all components, shipments, new orders and employment showing improvements. On the negative side, The US Home Prices index and S&P Case-Schiller home prices have increased below expectations.

USD/JPY expected to rally towards 117.00/10 – Credit Suisse

From a wider angle, economists at Credit Suisse observe the pair in a consolidation phase, ahead of further appreciation: “With a major base in place above the 112.40 high of 2019 we look for an eventual break above 114.73/92 in due course for a move to 115.51 initially and then the long-term downtrend from April 1990 at 117.00/10. We look for a potentially lengthy consolidation phase to emerge here.”

Technical levels to watch