USD/JPY pulls away from 2-week lows, stays below 109

• US Dollar ındex recovers modestly on upbeat housing data.
• Wall Street gains traction following a mixed start to the day.
• Coming up: Employment report from Japan.

After losing more than 60 pips on Wednesday, the USD/JPY pair slumped to a 15-day low of 108.50 today. However, with the major equity indexes in the U.S. gaining traction in the last hour, the pair started to retrace its daily drop and was last seen trading at 108.75, still down 0.25% on the day.

During the first half of the day, the greenback’s market valuation drove the pair’s price action. Pressured by the dovish shift in the FOMC’s language, the US Dollar Index slumped to a 3-week low of 95.16 before rebounding on the back of upbeat housing data. Commenting on the Fed’s policy outlook, “The Fed policy that keeps the U.S. economy strong is good for Japan’s economy too, said Bank of Japan (BoJ) Deputy Governor Amamiya earlier today.

The U.S. Census Bureau today reported that new home sales in November increased by an impressive 16.9% on a monthly basis in November and beat the analysts’ estimate of 2.9% by a wide margin. At the moment, the DXY is virtually unchanged on the day at 95.38.

In the meantime, major equity indexes in the U.S. started the day on a mixed note but recently turned north led by strong gains in the technology sector. As of writing, the Nasdaq Composite was adding 1.4% on the day while the S&P 500 was up 0.7%. The Dow Jones Industrial Average, which lost as much as 0.6% in the first hour following the opening bell, was almost flat on the day.

In the Asian session on Friday, the unemployment rate, which is expected to tick down to 2.4% in December, will be released from Japan.

Key technical levels

The initial support for the pair aligns at 108.50 (daily low) ahead of 108 (Jan. 14 low) and 107.50 (Jan. 4 low). On the upside, resistances are located at 109.10 (20-DMA), 110 (psychological level) and 110.35 (50-DMA).