Fundamental overview:

USD/JPY is expected to consolidate with bullish bias after hitting a 12.5-year high of 124.92 on Monday. It is underpinned by the improved dollar sentiment (ICE spot dollar index last 97.42 versus 96.99 early Monday) after the data released on stronger-than-expected US May ISM manufacturing PMI of 52.8 (versus forecast 51.8) and larger-than-expected 2.2% on-month increase in the US April construction spending (versus forecast +0.9%). USD/JPY is also supported by the higher US Treasury yields (10-year rose 8.7 bps to 2.182% overnight), improved investor risk appetite (S&P 500 closed 0.21% higher at 2,111.73 Monday), demand from Japan's importers, and the Bank of Japan's ultra-loose monetary policy. But the USD sentiment is dented by the weaker-than-expected US April personal spending (came in flat on-month versus forecast for +0.2% on-month), softer-than-expected US April core PCE price index of +0.1% on-month (versus forecast +0.2%). USD/JPY gains are also tempered by the Japanese exports.

Technical comment: The daily chart is positive-biased as the MACD is bullish; stochastics stays elevated at overbought levels; 5 and 15-day moving averages are advancing.

Trading recommendations:

The pair is trading above its pivot point. It is likely to trade in a wider range as long as it remains above its pivot point. As long as the price holds above its pivot point, long positions are recommended with the first target at 124.80 and the second target at 125.25. In the alternative scenario, short positions are recommended with the first target at 122.85 if the price moves below its pivot points. A break of this target is likely to push the pair further downwards, and one may expect the second target at 122.45. The pivot point is at 123.60.

Resistance levels: 124.80 125.25 125.75

Support levels: 122.85 122.45 121.70