USD/JPY eases off 2-month highs, consolidates above 114

After reaching its highest level since March 10 at 114.30 in the European session, the USD/JPY pair struggled to preserve its bullish momentum. The pair, which has been moving sideways above the 114 handle in the last couple of hours, is now trading at 114.15, up 0.23% on the day.

Higher risk appetite on the back of the solid performance of the major global equity indices seems to be the primary reason behind the weakness of the safe-haven JPY during the first half of the day. On the other hand, U.S. stocks started the day in a cautious tone as the second quarter earnings season looms, making it difficult for the pair to extend its daily gains. At the moment, the Dow Jones Industrial Average is losing 0.15% while the S&P 500 is nearly flat.

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At the top of the hour, the Fed is going to release its Labor Market Conditions Index (LMCI) data, which is expected to improve to 2.5 in June from 2.3 in May. Although this data by itself shouldn't be able to impact the demand for the greenback, a positive reading could help the equity indexes gain traction and lift the pair. 

Technical outlook

114.35 (May 10 high) could be seen as the first technical resistance for the pair, and with a decisive break above that level, 115 (psychological level) and 115.50 (Mar. 10 low) could be targeted. On the downside, 113.85 (daily low) could be seen as the initial support ahead of 113.15 (Jul. 7 low) and 112.75 (Jul. 4 low). Looking at the daily graph, we see that the RSI indicator is now in the overbought territory above the 70 mark. The last time this happened, on May 10, the pair fell sharply to correct nearly 400 pips. Although this doesn't necessarily mean that a similar move could be seen, investors may refrain from adding on to their long positions unless a fundamental catalyst supports that.

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