Overview:

USD/JPY is expected to consolidate in a higher range. USD/JPY is underpinned by the positive dollar sentiment (ICE spot dollar index last 80.38 versus 80.17 early Tuesday) as U.S. Treasury yields rose after Federal Reserve Chairwoman Janet Yellen reiterated her prior commitment to near-zero policy rates in her Congressional testimony but said the Fed could move sooner to hike rates if economic data continues to surprise to the upside. USD/JPY is also supported by the demand from Japanese importers and jump in New York Fed Empire State manufacturing index to 25.60 in July, the highest level in more than four years, from 19.28 in June. But the USD sentiment is dented by the weaker-than-expected 0.2% on-month increase in U.S. June retail sales (versus +0.6% forecast); smaller-than-expected 0.1% on-month increase in U.S. June import price index (versus +0.4% forecast). The USD/JPY gains are also tempered by Japanese exporter sales and unwinding of JPY-funded carry trades amid diminished investor risk appetite (VIX fear gauge rose 1.18% to 11.96; S&P 500 fell 0.19% overnight to close at 1,973.28) as Yellen also noted considerable uncertainty about the economy and said that some stock valuations look stretched. Mixed FX impact on JPY Tuesday as Bank of Japan maintained its policy of increasing the country's monetary base at an annual pace of Y60 trillion to Y70 trillion but slightly trimmed its growth forecast for the country for the current fiscal year ending in March to 1.0% from 1.1%; BOJ Gov. Kuroda discounted speculation that weaker growth would prevent the BOJ from achieving its 2% inflation target, suggesting that no additional easing measures are on the table.

Technical comment:
Daily chart is mixed as MACD is bearish, but stochastics is in bullish mode.

Trading recommendation:
The pair is trading above its pivot point. It is likely to trade in a higher range as far as it remains above its pivot point. As far as the price is above its pivot point, a long position is recommended with the first target at 101.85 and the second target at 102.05. In an alternative scenario, if the price moves below its pivot points, short positions are recommended with the first target at 101.20. A break of this target would push the pair further downwards and one may expect the second target at 101.05. The pivot point is at 101.45.

Resistance levels:
101.85
102.05
102.25

Support levels:
101.20
101.05
100.80