USD/JPY Forex Technical Analysis – Bullish US Economic Data Could Trigger Breakout Over 135.960

The Dollar/Yen is trading flat on Thursday as traders await direction from a slew of U.S. economic data including the Philly Fed Manufacturing Index, Weekly Unemployment Claims, Existing Home Sales and the Conference Board’s Leading Index.

On Wednesday, the Forex pair surged early in the session on the back of flat-to-better U.S. Retail Sales data, but gave back some of those gains after the Fed’s July meeting minutes came out less-hawkish than expected.

At 04:12 GMT, the USD/JPY is trading 135.043, down 0.030 or -0.02%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $69.25, down $0.42 or -0.60%.

Wednesday Recap

U.S. Retail data indicated that activity remained flat in July as consumers shifted spending online and falling fuel prices contributed to a decline in gas station sales. Traders weren’t too rattled by the news and actually drove up the probability of a 75 basis point rate hike at the Fed’s September meeting.

However, the Fed’s minutes offered up an excuse for investors to trim a little off the top. I’ve seen the minutes described as ‘dovish’, ‘less-hawkish’ and ‘hawkish’. This kind of spread could mean anything, but it basically suggests there is still a lot of time for traders to decide what the Fed is going to do at its September 21 meeting.

The Fed delivered hawkish news when the minutes showed that policymakers would continue their aggressive hiking campaign until it can tame inflation.

But the hawkish tone was dampened after the minutes showed Fed policymakers also indicated that it could soon slow the pace of its tightening, while also acknowledging certain weakness in parts of the economy and risk to the downside for GDP growth.

Technically Speaking …

The main trend is down according to the daily swing chart. A trade through 135.568 will change the main trend to up. A move through 131.734 will signal a resumption of the downtrend.

Support is a major retracement zone at 132.876 to 131.338. Resistance is a short-term retracement zone at 134.901 to 135.960.

The trigger point for an acceleration to the upside is the short-term Fibonacci level at 135.960. The daily chart indicates there is plenty of room to the upside with 139.389 the primary upside target.

Daily Forecast

Traders will be monitoring the U.S. economic data for their impact on U.S. Treasury yields and the probability of a 50 or 75 basis point rate hike. Currently, they stand at 61% and 39% respectively.

A rise in Treasury yields and an increase in the chances of a 75 basis point rate hike could be enough to change the main trend to up and trigger an eventual breakout to the upside.