USD/JPY yearns for gains above 114.00 handle, needs a strong catalyst

• USD/JPY struggles to gather traction above 114.00 handle
• Needs a stronger catalyst for extension of the near 90 degree rally from the low of 111.65
• US 10-year treasury yield is flat lined, focus on US GDP

The USD/JPY pair is holding above 114.00 handle, but lacks a reason to rally further. At the time of writing, the currency pair is trading at 114.13 levels.

Focus on US GDP

Analysts at Nomura say,"The BEA is expected to report growth of 2.9% q-o-q saar (Consensus: 2.6%). Despite the negative impact from the recent hurricanes, we think the US economy continued to grow above potential in Q3.  Incoming data on personal spending suggest steady growth. On the business side, reflecting healthy growth in new domestic orders of core capital goods, we expect steady gains in equipment investment. Inventory investment likely contributed strongly to Q3 growth as businesses build up inventories in the face of better demand."

"Although the recent hurricanes may have disrupted production in affected areas, incoming data suggest resilient growth in inventory investment. Further, exports in recent quarters have been strong. We expect this trend to have continued in Q3, reducing the drag from net exports, despite hurricane-related disruptions to global shipments."

"On the downside, we expect some drag from business investment in structures, likely reflecting the negative impact from the hurricanes, tighter credit standards for commercial real estate loans, and plateauing oil and gas well drilling activity."

US GDP and Impact on USD/JPY

A better-than-expected US GDP could push the 10-year US treasury yield rally above 2.5%, thus leading to a sustained rally in the USD/JPY pair above 114.00 handle.

On the other hand, a dismal GDP figure (weak consumption component) could yield a significant correction in the USD/JPY pair, given the failure to capitalize on a bullish break above 114.00 suggests the bulls are already exhausted.

USD/JPY Technical Levels

Jim Langlands from FX Charts writes-

"On the topside, back above 114.00, resistance will be seen at the 25 Oct high of 114.25, above which there is not too much to stop the dollar heading towards 114.50 and beyond that, to the major descending trend resistance, currently at 115.05. If US bond yields continue to climb, then US$Jpy will be testing 115.00 in the near future. On the downside, support will arrive at 113./50,  at 133.35 (session low) low, and again at the 24 Oct low at 113.24. Below that, a test of 113.00 could be on the cards, beneath which would see us back in the previous 112/113 range. Minor support should arrive at 113.20/00 below which 112.80 (rising trend support) and Friday’s low of 112.50 should provide decent backup."