USD/JPY consolidates daily gains below 112 as DXY remains in red

• US dollar struggles to preserve daily earnings.
• GDP growth in the U.S. beat market expectations.
• US 10-year T-bond yields up nearly 2% on the day.

After closing the previous day with a 50-pip gain, the USD/JPY extended its upside on Wednesday and refreshed its weekly high at 112.15 before going into a consolidation phase. As of writing, the pair was trading at 111.85, adding 35 pips, or 0.34%, on the day.

US economy remains on the right path

According to the data released by the Bureau of Economic Analysis, the real GDP growth in the United States increased at an annual rate of 3.3% in the third quarter of 2017, beating the market expectation of 3.2%. Other data from the U.S. showed that pending home sales rose by 3.5% on a monthly basis in October following September's 0.4% contraction.

In the meantime, in her testimony before the Joint Economic Committee, Federal Reserve Chair Janet Yellen reiterated that gradual rate hikes were appropriate and the reason behind the recent inflation softness was unclear. Furthermore, speaking at an event on Wednesday, San Francisco Federal Reserve President John Williams supported the view of the Fed continuing to raise rates slowly. The US Dollar Index, which advanced to its highest level since November 22 at 93.38 during the first half of the NA session, failed to stretch its gains and turned negative on the day. At the moment, the index is at 93.10, down 0.1% on the day. 

Investors remain reluctant to commit to larger USD positions ahead of tomorrows PCE price index data, the Fed's favorite inflation gauge. Moreover, the tax bill is expected to encounter major obstacles in the Senate. Nevertheless, the US 10-year T-bond yield is up 2% on the day and is helping the greenback show resilience against its major rivals.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "in the 4 hours chart, technical indicators hold within positive territory, but the RSI has turned lower, while the Momentum also eased, suggesting buying interest diminished in the last hours. Furthermore, the price remains below a strongly bearish 100 SMA, currently at 112.50, limiting the upward potential in the pair."

According to the analyst, supports for the pair could be seen at 111.60, 111.20, and 110.80 while resistances align at 112.10, 112.50, and 112.90.