USD/JPY leaps to mid-112s on Yellen's comments

The USD/JPY pair gathered strength in the second half of the NA session and rose to a fresh daily-high at 112.49 on Fed Chairwoman Yellen's comments, erasing yesterday's losses. Following the initial market reaction, the pair eased back a little and was last seen trading at 112.38, gaining 0.6% on the day.

Yellen said that it would be "imprudent" to keep monetary policy on hold until inflation is back to 2% in her prepared speech. She further added that a gradual approach to rate hikes would be particularly appropriate in light of subdued inflation and low neutral rate. The CME Group FedWatch's rate hike probability for December increased from 71.4% to 81.4% on Yellen's remarks, pushing the US Dollar Index to its highest level since August 31 at 93.10. At the moment, the DXY is at 92.90, up 0.5% on the day.

• Yellen crossing the wires (dollar strength) "Uncertainties strengthen case for gradual rate hikes" - RTR

In the meantime, The Atlanta Federal Reserve Bank’s new president, Raphael Bostic, also adopted a hawkish tone in his first official speech before the press. Bostic argued that he wasn't regarding the monetary policy as being "too loose" for the current economic conditions and noted that he was "open-minded" about a rate hike in December.

• Fed's Bostic: Open minded about December rate increase

Technical outlook

The RSI indicator on the H4 chart turned north above the 50 handle, suggesting that the bullish momentum is building up. The pair could encounter the first resistance at 112.50 (daily high/Aug. 25 high) ahead of 113.00 (psychological level) and 113.50 (Jul. 14 high). On the downside, supports align at 112.00 (psychological level/20-DMA), 111.65 (50-DMA) and 111.25 (Sep. 20 low).