The USD/JPY pair lacked any firm directional move and seesawed between gains/minor losses through the mid-European session. The pair was last seen trading just below the 109.00 mark, nearly unchanged for the day. The intraday dip was quickly bought into near the 108.60 region. This marks the lower boundary of the weekly trading range and should act as a pivotal point for traders.
Looking at a slightly broader picture, the USD/JPY pair has been oscillating in a narrow trading band over the past one week or so. The range-bound price action constitutes the formation of a rectangle on short-term charts. Given the recent strong rally since the beginning of this year, the rectangle marks a brief pause and might still be categorized as a bullish continuation pattern. This, in turn, supports prospects for further near-term gains.
That said, RSI (14) on the daily chart is still holding above the 70.00 mark and points to slightly overbought conditions. Hence, it crucial to wait for a sustained break through the trading range barrier, or multi-month tops around the 109.25-30 region touched earlier this month, before positioning for any further appreciating move.
The USD/JPY pair might then accelerate the momentum and aim to reclaim the key 110.00 psychological mark for the first time since March 2020. The next relevant target on the upside is pegged near the 110.80 region before bulls push the pair further towards the 111.00 round-figure mark.
On the flip side, sustained weakness below the weekly trading range support, around the 108.70 region could be seen as the first sign of bullish exhaustion with . Some follow-through weakness below the 108.35-30 region will reaffirm a near-term bearish reversal and prompt some aggressive long-unwinding trade. The subsequent downfall has the potential to drag the USD/JPY pair further below the 108.00 mark en-route the 107.35 intermediate support and the 107.00 level.