USD/JPY treads water near mid-112s as final session of year starts

• USD/JPY is down 75 pips on the week, flat on the month.
• USD sell-off continues, DXY drops below 92.

The broad-based selling pressure seen on the buck is weighing on the USD/JPY pair for the second straight day. As markets get ready to wrap up the year, the pair is consolidating its daily gains. At the moment, the pair is trading at 112.56, down 0.3% on the day.

Despite a lack of fundamental drivers, the US Dollar Index extended its losses on Friday and dropped below the 92 mark for the first time since late September. Year-end flows seem to be the primary catalyst behind the index's fall this week. Moreover, investors may be hesitant to commit themselves to large USD positions until they see how the tax reform impacts the economic activity in 2018. Meanwhile, it's still unclear if the inflation softness in the United States is due to temporary factors and the Fed is likely to adopt a cautious tone in the first quarter of next year.

Despite the sharp drop witnessed in the last two days, the pair is virtually unchanged on a monthly basis and is looking to end the year with a loss of over 300 pips.

Technical levels to consider

The initial support for the pair aligns at 112.40 (100-DMA) ahead of 111.80 (200-DMA) and 110.85 (Nov. 27 high). On the upside, resistances align at 112.85 (50-DMA), 113.60 (Dec. 21 high) and 114.30 (Nov. 1 high).