USD/JPY is expected to trade with bullish bias. On Friday, the U.S. indices closed higher lifted by bank and technology shares. The Dow Jones Industrial Average rose 0.3% to 17,873, the S&P 500 climbed 0.4% to 2,099, while the Nasdaq Composite gained 0.7% to 4,933. Trading volume was thin ahead of the long weekend, with the Memorial Day holiday falling on Monday.
Federal Reserve Chairwoman Janet Yellen said Friday that a rate increase in the coming months would be appropriate.
On the economic data front, the U.S. GDP growth in the first quarter was revised up to +0.8% quarter-on-quarter (seasonally adjusted, annualized) from +0.5% previously estimated. And the University of Michigan Consumer Sentiment Index rose to 94.7 in May (vs 95.4 expected, 95.8 in the preliminary reading) from 89.0 in April.
Nymex crude oil declined 0.3% to $49.33 a barrel. Gold marked an eighth straight losing session by falling another 0.6% to $1,212 an ounce, giving up 5.3% or $67 an ounce in the losing streak. The benchmark 10-year U.S. treasury yield rose to 1.851% from 1.823% in the previous session.
Cheered by Yellen's comments on raising interest rates, which echoed those given by her fellow Fed officials earlier, the U.S. dollar strengthened against most other major currencies. EUR/USD fell 0.7% to 1.1114, the lowest level since mid-March, USD/JPY gained 0.4% to 110.22, and USD/CHF rose 0.6% to 0.9945.
Meanwhile, GBP/USD dropped 0.3% to 1.4620, drifting further below its overhead 200-day moving average.
At the same time, commodity-linked currencies turned to be under pressure, with USD/CAD increasing 0.3% to 1.3017, AUD/USD falling 0.6% to 0.7179, the lowest closing level in more than two months, and NZD/USD shedding 0.7% to 0.6691. The pair continues on an uptrend initiated Friday and is trading around the upper Bollinger band, calling for an acceleration to the upside. The 20-period (30-minute chart) moving average is well above the 50-period one, and the intraday relative strength index has also broken above the over-bought level of 70. The intraday outlook is still very bullish. The immediate resistance at 111.45 is in sight, and a break above this level would call for a bounce further towards the next one at 111.90.
Recommendation: The pair is trading above its pivot point. It is likely to trade in a wider range as long as it remains above its pivot point. Therefore, long positions are recommended with the first target at 111.45 and the second one, at 111.90. In the alternative scenario, short positions are recommended with the first target at 110.20 if the price moves below its pivot points. A break of this target is likely to push the pair further downwards, and one may expect the second target at 109.80. The pivot point is at 110.45.
Resistance levels: 111.45, 111.90, 112.35
Support levels: 110.20, 109.80, 109.10
The material has been provided by InstaForex Company - www.instaforex.com