USD/JPY: bulls take back control towards 113 handle as US politics turn less negative

• USD/JPY bounces back.
• USD/JPY a political move. 

USD/JPY has recovered in style at the start of the week, rallying from the US session close of 112.15 in a bullish gap in the Asian open to 112.89 the high and holding the bid in Tokyo so far, currently trading at 112.75.

USD/JPY took a hammering last week on the back of the Flynn headlines while politics continues to be the driver, despite the upbeat US data that offered a short-lived bit of support for the greenback. 

How will the dollar behave at the start of this week on political dramas?
   
Latest US data

Construction spending rose at its fastest pace in five months, up by 1.4% in October against the previous and expected 0.5%. The final November Markit PMI came in at 53.9 from the flash estimate of 53.8, while the official reading suffered a modest downward revision to 58.2 from 58.7, still indicating solid growth in the manufacturing sector. 

However, the Flynn headlines sent yields in a spiral of 5bps in the ten-years, eventually ending the US session at 2.36% but well below the mid-week high of 2.42%.

However, the start of this week is focussing on the progress made in the Senate passing the US tax plan reforms and a slightly misleading article 
 given that ABC news failed to highlight that Flynn was instructed to contact Russia AFTER the election.

USD/JPY levels

However, technically, Valeria Bednarik, chief analyst at FXStreet explained that the daily chart is showing that the pair bottomed around its 100 and 200 DMAs, both horizontal and converging within 10 pips of a range and that those technical indicators have lost upward strength right below their mid-lines, indicating that the upward potential is limited. 

"In the 4 hours chart, the pair settled below a bearish 100 SMA, while technical indicators have turned lower, now pressuring their mid-lines, leaning the scale toward the downside, albeit the dollar can gap higher at the weekly opening on US political news, released over the weekend," Valeria added.