USD/JPY consolidates overnight strong gains to 3-1/2 month tops

   •  Investors largely ignored weaker Japanese Q1 GDP figures. 
   •  Tracking subdued USD demand/retracing US bond yields.
   •  Manages to hold above the very important 200-day SMA.

The USD/JPY pair traded in a narrow trading range through the Asian session on Wednesday and was seen consolidating overnight strong gains to 3-1/2 month tops. 

A strong follow-through US Dollar upsurge helped the pair to finally breakthrough the key 110.00 psychological mark and move past the very important 200-day SMA barrier on Tuesday. 

Resurgent US Treasury bond yields, with the 10-year note shooting above the psychologically important 3% level to hit its highest level since 2011, was seen as one of the key factors underpinning the greenback demand.

This coupled with the latest US monthly retail sales data, which although fell short of consensus estimates but indicated that the economy is picking up pace after a slow start to the year, remained supportive of the strong bullish sentiment surrounding the buck.

Bulls, however, took a breather on Wednesday and failed to capitalize on disappointing Japanese GDP growth figures, which missed expectation to end its nine-quarter growth run. With the USD entering a consolidation phase, a modest retracement in the US bond yields further collaborated to the pair's mildly softer tone/subdued trading action.

Today's US economic docket, featuring the release of housing market data, along with a scheduled speech by Atlanta Fed President Raphael Bostic would now be looked upon for some fresh trading impetus.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: “The USD bulls will likely attack the long-term falling trendline resistance of 111.25 in the next few days. A close above 111.25 would confirm a long-term bullish trend reversal, i.e. sell-off from the August 2015 high has ended and the bulls have regained control.”

“Meanwhile, a failure to hold above 110.00 would abort the bullish view and the short-term outlook would turn bearish if the 5-day MA and the 10-day MA begins to roll over in favor of the bears,” he further added.