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

The Dollar/Yen finished slightly better in a lackluster trade on Friday. Volume was well-below average with the early close of the U.S. Treasury market and most of the major banks and institutions on the sidelines ahead of Monday’s U.S. Memorial Day holiday.

Capping the market’s gains were easing concerns about Federal Reserve interest rate hikes, and data showing a slowdown in the pace of consumer price growth in the month of April.

On Friday, the USD/JPY settled at 127.109, up 0.025 or +0.02%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) closed at $73.68, down $0.04 or -0.05%.

In U.S. economic news, the Federal Reserve’s preferred inflation metric showed a 4.9% year-over-year rise in April. This result matched pre-report estimates and could be a sign that inflation has peaked.

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 first intermediate range is 121.284 to 131.348. Its 50% level at 126.316 is providing support. It is also the trigger point for an acceleration to the downside.

The second intermediate range is 123.471 to 131.348. Its 50% level at 127.410 is acting like resistance.

The short-term range is 131.348 to 126.362. Its pivot at 128.855 is potential resistance.

The major downside target and potential support is a pair of 50% levels at 123.00 to 122.410.

Short-Term Forecast

Trader reaction to the 50% levels at 127.410 and 126.316 will determine the direction of the USD/JPY early Monday.

Bullish Scenario

A sustained move over 127.410 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for a possible near-term surge into the pivot at 128.855.

Bearish Scenario

A sustained move under 126.316 will be a sign of weakness. If sellers come in strong on this move then look for an acceleration to the downside with 123.00 to 122.410 a possible target area.

Side Notes

The divergence in monetary policies between the U.S. Federal Reserve and Bank of Japan still favors the U.S. Dollar over the longer-term. But over the short-term, the Dollar/Yen is vulnerable to a steep sell-off because U.S. Treasury yields are overextended.

U.S. Treasury bond sellers were betting on a much more aggressive Fed, but so far the economic data suggests policymakers could raise rates at a slower pace starting at their September 2022 meeting. This could drive down yields, encouraging USD/JPY traders to ease up on the long side.