Confirmation of USD/JPY Reversal Top Shifts Momentum to Down

The Dollar/Yen posted a closing price reversal top on Friday as U.S. Treasury yields eased and demand for riskier assets returned. The 10-year U.S. Treasury yield dipped after the Federal Reserve’s key inflation gauge rose at its fastest clip since 1983 in December. Meanwhile, Wall Street surged on Friday, notching its best day so far in 2022 after another zigzag session.

On Friday, the USD/JPY settled at 115.240, down 0.127 or -0.11%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $81.33, up $0.03 or +0.04%.

December’s personal consumption expenditures index, which is the Federal Reserve’s primary inflation measure, increased 4.9% from a year ago, the Commerce Department reported Friday. This was the biggest gain going back to September 1983.

The major U.S. stock indexes ended a tumultuous week marked by mixed corporate earnings, geopolitical turmoil and an increasingly aggressive Federal Reserve with a solid gain.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, the potentially bearish closing price reversal top suggests momentum may be getting ready to shift to the downside.

A trade through 115.686 will negate the closing price reversal top and signal a resumption of the downtrend. A move through 115.124 will confirm the closing price reversal top, which could trigger the start of a 2 to 3 day correction. The main trend will change to down on a trade through 113.472.

The short-term range is 112.538 to 116.345. Its retracement zone at 114.442 to 113.992 is the nearest support area.

The main range is 110.826 to 116.345. Its retracement zone at 113.586 to 112.934 is controlling the near-term direction of the Forex pair.

Short-Term Outlook

Look for the upside bias to continue if buyers can take out 115.686. Not only will the move negate the closing price reversal top, but it could trigger an acceleration to the upside with 116.345 the next major upside target.

A trade through 115.124 won’t change the main trend to down, but it will shift momentum to the downside. If this move creates enough downside momentum then look for the selling to possibly extend into 114.442 to 113.992.