USD/JPY Forex Technical Analysis – 126.316 is Potential Trigger Point for Acceleration to Downside

The Dollar/Yen is edging lower on Friday as traders contemplated whether the Federal Reserve might slow or even pause its tightening cycle starting in September, which could put downward pressure on interest rates, making the U.S. Dollar a less-attractive investment.

At 03:50 GMT, the USD/JPY is trading 126.811, down 0.273 or -0.21%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $73.71, up $0.12 or +0.16%.

The USD/JPY began to weaken after minutes from the Fed’s May meeting, released Wednesday, showed that most participants judged that 50 basis-point hikes would likely be appropriate at the June and July policy meetings to combat inflation that they agreed had become a key threat to the economy’s performance.

Many of the participants believed that getting rate hikes in the books quickly would leave the central bank well positioned later this year to assess the effects of policy firming, the minutes showed.

The current price action suggests that investors are becoming a little more optimistic that Fed policymakers would tone down the aggressiveness with tightening if inflation fell sooner than expected, or if the economy weakened too quickly especially the labor market.

The Japanese Yen is not expected to turn bullish per se, but it could post a strong rally as investors who bet on a more aggressive Fed reduce their exposure to the U.S. Dollar.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 126.362 will signal a resumption of the downtrend. A move through 131.348 will change the main trend to up.

The minor trend is also down. The next minor bottom target is 125.089. A trade through 130.813 will change the minor trend to up.

On the upside, the nearest resistance is a minor pivot at 127.410. This is followed by a second pivot at 128.855.

On the downside, the nearest support is a 50% level at 126.316. This is a potential trigger point for an acceleration to the downside with a pair of 50% levels at 123.00 and 122.410 the next key targets.

Daily Swing Chart Technical Forecast

Trader reaction to 126.316 and 127.410 is likely to determine the direction of the USD/JPY on Friday.

Bearish Scenario

A sustained move under 126.316 will indicate the presence of sellers. Two scenarios are possible after that.

In the first scenario, the USD/JPY accelerates to the downside over the short-run with 123.00 – 122.410 the target area.

In the second scenario, the USD/JPY initially tests minor bottoms at 125.089 and 123.471 before reaching 123.00 – 122.410.

Bullish Scenario

A sustained move over 127.410 will signal the return of buyers. If this is able to generate enough upside momentum then look for the buying to possibly extend into the pivot at 128.855. Since the main trend is down, sellers are likely to come in on a test of this area.