USD/JPY bulls look to the current August high at 112.15, but cross-currents capping bullish progress

• Initiated by a strong US open on Wall Street and a beat in the PCE and GDP, USD/JPY has spiked through a key technical resistance at the daily Ichimoku cloud lockdown of between 110.65-111.62.
• Now targets a break of the 112 handle at this rate in an additional squeeze of the short-overhang below and around the figure. 

USD/JPY had been contained between the daily Ichimoku cloud lockdown at 110.65-111.62 and the Kijun around 111 the figure. However, there are a number of factors in play today that have underpinned risk-sentiment in markets and enabled a sell-off in the yen and for yen crosses to bust through key technical levels, (such as the cloud top in EUR/JPY engulfing just over 130 the figure which has subsequently been broken like a knife through butter - cross currently stands at 130.70 at the time of writing); level that had otherwise seemed daunting on previous lacklustre attempts. 

USD/JPY is currently trading at 111.80 bid and a clear out of stops put the double top highs of the end of July business at 112/12/14 on the map. However, the cross flows are not supporting such a breakout and the DXY is a mixed bag with the greenback under pressure vs sterling on more positive Brexit noise, CHF and EUR are stronger and the dollar is off its highs vs commodity-FX. US yields are also off their highs for the day and it appears that the move in the yen is looking to crystalise here.

Positive news flow coming through today

However, there is positive news flow coming through today around Brexit, (European Union negotiator, Michel Barnier said that they are ready to offer a partnership to UK and they want a Brexit deal), and trade, (with Canada’s Freeland has said that they are in intense conversations with the US but added that it was a good conversation with Lighthizer. Also had good conversations with the Mexicans on Tuesday. There will be additional talks later today at 5 ET between the US and Canada). That is all risk-friendly. 

Additionally, the dollar may get an additional boost in due course when the market factors in that the real funds rate remains negative, a departure from previous U.S. tightening regimes which suggests that the Fed has to hike more than markets currently expect - nullifying the Powell Jackson Hole speech - (Typically, the dollar strengthens as we head into the Fed meetings).

USD/JPY levels

"We believe that the cross is trying to resume its longer-term up move. We thus anticipate a retest of the current August high at 112.15 above which sit the July peak and 200 week moving average at 113.18/34," analysts at Commerzbank explained.  However, adding that if the 109.78 level were to give way (last week’s low), the June 8 low at 109.20 would be in focus. "Failure there would imply a slide back to the 108.12 May 29 low and the mid-February high at 107.91."