USD/JPY Forecast: Heading higher on dollar’s comeback

USD/JPY Current price: 105.46

• US Congress revived discussions on a new stimulus package to aid the economy.
• The focus shifts now to US August Durable Goods Orders.
• USD/JPY pressuring weekly highs and poised to advance towards 106.25.

Dollar’s rally paused late on Thursday, amid hopes related to a US stimulus package. According to the latest headlines,  Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have agreed to restart formal talks on a second round of stimulus. House Democrats are putting together another coronavirus relief package, which would cost about $2.4 trillion.  

The positive sentiment, however, seems to be fading in the London session, as stocks plummet and the greenback gathers momentum against most major rivals. The USD/JPY pair, in the meantime, continues to trade around 105.40.

 Japan published the August Corporate Service Price Index, which came in at 1% YoY, below the 1.4% expected. The focus now shifts to US Durable Goods Orders,  foreseen at 1.5% in August, down from 11.4% in July.

USD/JPY short-term technical outlook

The USD/JPY pair is nearing its weekly high at 105.54, a handful of pips above the 61.8% retracement of its latest daily decline. The risk is skewed to the upside, according to the 4-hour chart, as the 20 SMA maintains its bullish slope, and surpassed the 50% retracement of the mentioned decline. The 100 SMA, however, maintains a modest bearish slope, providing a dynamic resistance around the mentioned high. Technical indicators, in the meantime, remain within positive levels, slowly grinding higher. A clear break of the mentioned high should favor an extension towards the 106.25, where the pair would complete a 100% retracement.

 Support levels: 104.85 104.50 104.00   

Resistance levels: 105.55 105.90 106.25

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