The USD/JPY has been on a tear north today, a rare bright spot for the struggling Greenback. Rates are up nearly 0.5%, a session gain of more than 40 pips. For now, the key technical area in play for this pair is the 106.50 level.

On the surface, there aren’t a whole lot of solid reasons behind USD/JPY breakout. However, a decent set of U.S. home sales figures certainly haven’t hindered the rally:

Event                                                                Actual           Projected          Previous

New Home Sales (MoM, July)                       0.901M           0.785M              0.791M

New Home Sales Change (MoM, July)            13.9%             1.3%                15.1%

The headline from this data group is the continued strength in U.S. real estate. Mortgage rates are near all-time lows and homebuyers are getting in on the action. This will be an interesting trend to watch as the year progresses.

In addition to these figures, the Richmond FED Manufacturing Index (August) has come in at 18. This is a big month-over-month gain, nearly doubling July’s number of 10. While only a peripheral metric, it does suggest that business is picking up and a COVID-19 manufacturing recovery is underway. Let’s check in on the USD/JPY daily technicals and see where this market stands.

USD/JPY Breaks Above The Daily SMA

The past two sessions have been good ones for USD/JPY bulls. Rates have broken back above the Daily SMA and are in a position to threaten the August high of 107.04.

Here are the key levels to watch going into tomorrow’s session:

• Resistance(1): Swing High, 107.04
• Support(1): Daily SMA, 106.12

Bottom Line: If we see the USD/JPY continue its upward trajectory, a test of the Swing High will come by the end of the week. Until elected, I’ll have sell orders in the queue from 106.94. With an initial stop loss at 107.19, this trade produces 25 pips on a standard 1:1 risk vs reward ratio.