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James Hyerczyk
USD/JPY

The Dollar/Yen is edging lower on Friday in a relatively slow trade with most major players traders on the sidelines because of the Christmas holiday. The price action the past six sessions suggests the bears are taking a bit of a breather after drilling the Forex pair into its lowest level since the pandemic began.

The recent break into 102.886 corresponded with the rollout of the coronavirus vaccines, a dovish Federal Reserve and the passing of new fiscal stimulus bill by the U.S. government. Since then prices have stabilized and moved slightly higher as short-sellers covered profitable traders and other squared positions ahead of the New Year.

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At 15:29 GMT, the USD/JPY is trading 103.475, down 0.184 or -0.18%.

Daily USD/JPY

Daily Technical Analysis

The main trend is down according to the daily swing chart. A trade through 102.886 will signal a resumption of the downtrend after six days of counter-trend consolidation. The main trend will change to up on a move through 104.751.

The minor trend is also down. A trade through 104.579 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 102.886 to 103.890. Its 50% level or pivot at 103.388 is providing support. This level is also controlling the short-term direction of the Forex pair.

The short-term range is 105.677 to 102.886. Its retracement zone at 104.282 to 104.611 is the nearest upside target and resistance zone. It’s also the last resistance zone before the 104.579 minor top and the 104.751 main top.

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Short-Term Outlook

The catalyst driving the direction of the USD/JPY is demand for risk. A fears over the pandemic subside, investors are looking for higher returns in riskier assets. Traders are also selling dollars to buy these riskier assets.

When the spread between U.S. Government bond yields and Japanese Government bond yields was wide, investors would sell the Japanese Yen and buy stocks. This was known as the carry trade. With the spread extremely tight now, the strategy isn’t being used. Instead, traders are selling the dollar and moving money into stocks.

The current price action suggests that the next short-term move will be determined by trader reaction to 103.388.

An upside bias will develop if risk is off. This could send the USD/JPY into 104.282 to 104.611 over the near-term.

If risk is on then look for a break under 103.388. This could trigger a retest of 102.886. If this level fails then look for the rally to possibly accelerate to the downside into 101.185 to 101.179 over the long-run.

For a look at all of today’s economic events, check out our economic calendar.
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