USD/JPY: bulls attempting the upside to save face

FXStreet (Guatemala) - USD/JPY has been consolidating the downside after it plunged to a one-month low on Wednesday on USD weakens across the board. However, the upside is being tested here while the bulls flex what little muscle they have, testing the 1hr 20 SMA at 121.55.

Meanwhile, analysts at UOB Group noted that an initial survey of Japan's factory conditions this quarter suggests activity was much weaker than expected, which may add further pressure on policymakers to simulate growth. "The Business Survey Index plunged from 11.0 in the September quarter to 3.8 this quarter, against expectations for the index to rise to 12.1."

"The expectation for a recovery was clearly wrong as USD dropped to levels not seen since early November. While further weakness is ruled out, the down-move is overextended and a sustained break below the overnight low of 121.05 is not expected, at least not for today."

For now, all eyes turn to the FOMC next week and the Fed is expected to begin raising interest rates for the first time since June 2006. Markets expect that the Fed will be lifting the target range for the Fed funds rate by 0.25 percentage point to between 0.25% and 0.50%. Whether a buy the rumour sell the fact will play out in the medium term is yet to be seen, but in the near term, a Fed hike should offer confidence in the market and create demand for the Greenback.

USD/JPY levels

Technically, the analysts at UOB suggested, from here, 120.95 is expected to hold for a recovery to 122.05/10. "Outlook for USD shifts from neutral to bearish; target a move to 120.50."