USD/JPY consolidates losses above 113 as greenback settles around mid-95s

After fluctuating sharply in the early NA session, the USD/JPY pair went into a consolidation after finding support a couple of pips below the 113 handle. At the moment, the pair is trading calmly at 113.25, still losing 0.6% on the day.

In the first part of her two-day semi-annual testimony before the U.S. Congress, Janet Yellen, Chairwoman of the Federal Reserve, didn't offer anything surprising to the markets as she virtually repeated the monetary policy statement from the June meeting. Yellen reiterated that the Committee was planning to start the balance sheet reduction later this year and further added that one more rate hike in 2017 was seen still appropriate as the slowdown in the inflation was due to temporary factor. However, she didn't provide any clues regarding the timing of the rate hike. 

Nevertheless, markets think that a rate hike in December is more likely than a rate hike in September. According to the CME Group FedWatch Tool, the probability of a 25 bps hike in September eased to 8% from 13% while the odds for a December hike is seen at 44%. After dropping to a fresh session low at 95.27, the US Dollar Index recovered its daily losses to move into the positive territory. At the moment, the index is at 95.53, up 0.04% on the day.

• DXY: under pressure but making a minor recovery from key support

On the other hand, major equity indexes in the U.S. reacted positively to Yellen's remarks and advanced to fresh record highs, hurting the demand for safer assets like the JPY. As of writing, the Dow Jones Industrial Average is up 0.7%, and the S&P 500 is gaining 0.75%.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "...the 4 hours chart shows that the decline accelerated after the price broke below the base of the daily ascendant channel that led the way since early June, while technical indicators pared their declines, holding near oversold readings. In the same chart, the price remains above its 100 and 200 SMAs, with the shortest now in the 112.50 region, offering a key intraday support, as below it the bearish momentum will likely accelerate."

According to the analyst, supports for the pair could be seen at 112.85, 112.50 and 112.10 while the resistances align at 113.60, 114.00 and 114.40. 

Headlines from Janet Yellen's testimony:

• Fed's Yellen speech: Balance sheet could shrink to normal levels by 2022
• Fed's Yellen speech: Given current taxing and spending decisions, debt is unsustainable
• Fed's Yellen speech: As short term interest rates rise, banks will compete for deposits, raise deposit rates
• Fed's Yellen speech: We recognize dangers of persistent undershooting 2% inflation objective
• Fed's Yellen speech: Very focused on trying to achieve 2% inflation target