Holding 118.595 Puts USD/JPY in Position to Resume Uptrend

The Dollar/Yen is edging higher on Friday after consolidating for nearly two sessions despite the Federal Open Market Committee (FOMC) on Wednesday signaling the equivalent of a quarter-point increase at each of its six remaining policy meetings this year, leaving investors racing to work out how much monetary tightening the economy can handle.

At 10:08 GMT, the USD/JPY is trading 118.933, up 0.338 or +0.28%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust (FXY) settled at $79.04, unchanged.

The USD/JPY picked up some support overnight after Bank of Japan (BOJ) policymakers voted to maintain ultra-accommodative monetary settings. This move widened the policy gap with the Fed, which helped make the U.S. Dollar a more attractive asset.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 119.118 will signal a resumption of the uptrend. A move through 114.651 will change the main trend to down.

A change in trend to down at this time is highly unlikely, but the Forex pair is currently inside the window of time for a closing price reversal top. If confirmed, this could trigger the start of a minimum 2-3 day correction.

The USD/JPY is currently straddling a pair of former tops at 118.601 and 118.658. They could become new support following the “old top, new bottom” rule. The nearest support level is a minor pivot at 116.765.

Short-Term Outlook

The direction of the USD/JPY on Friday is likely to be determined by trader reaction to 118.595.

Bullish Scenario

A sustained move over 118.595 will indicate the presence of buyers. Taking out 119.118 will indicate the buying is getting stronger.

The daily chart indicates there is plenty of room to the upside with no resistance coming in until the January 29, 2016 main top at 121.678.

Bearish Scenario

A sustained move under 118.595 will signal the presence of sellers. A failure to hold 118.176 will break the chart pattern. This could trigger the start of a pullback with the pivot at 116.765 the next potential downside target.

Side Notes

Taking out 119.118 then closing below 118.595 will form a potentially bearish closing price reversal top. If confirmed, this could trigger the start of a minimum 2 to 3 day correction with 116.765 the first downside target.