USD/JPY Forex Technical Analysis – Buyers Like 113.173 – 112.619, Sellers Like 114.287 – 114.578

The Dollar/Yen is trading higher early Monday as traders try to claw back some of last week’s loss and Friday’s steep down move that wiped out two weeks of bullish gains.

On Friday, the headlines read the Dollar/Yen plunged as investors fled for shelter in the Japanese Yen following the discovery of a new coronavirus variant that could resist current vaccines. But don’t believe the headlines. The Dollar/Yen plummeted because U.S. Treasury yields fell sharply, tightening up the spread between U.S. Government bonds and Japanese Government bonds.

At 02:40 GMT, the USD/JPY is trading 113.650, up 0.306 or +0.27%.

If you try to trade the USD/JPY by reacting to the headlines, you’ll likely get whip-sawed because they are always late. Instead, watch and react to the price action in the U.S. Treasury market.

Essentially, a rally in the U.S. Treasury market (yields down) will be bearish for the USD/JPY. A break in the U.S. Treasury market (yields up) will be bullish for the Dollar/Yen.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 113.055 will signal a resumption of the downtrend. A move through 112.728 will reaffirm the downtrend. The main trend will change to up on a trade through 115.519.

The main range is 110.826 to 115.519. Its retracement zone at 113.173 to 112.619 is support. It was tested successfully at 113.055 on Friday. It is also controlling the near-term direction of the Forex pair.

The short-term range is 112.728 to 115.519. Its 50% level at 114.124 is the first upside target.

The minor range is 115.519 to 113.055. Its retracement zone at 114.287 – 114.578 is another upside target and potential resistance.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Monday is likely to be determined by trader reaction to 113.343 and 113.055.

Bullish Scenario

A sustained move over 113.343 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for a surge into 114.124, followed by 114.287 and 114.578.

Since the main trend is down, sellers may come in on a test of 114.124 to 114.578. They will be trying to form a potentially bearish secondary lower top.

Bearish Scenario

A sustained move under 113.055 will signal the presence of sellers. This could lead to a test of the main bottom at 112.728, followed by the Fibonacci level at 112.619. The latter is a potential trigger point for an acceleration to the downside with 110.826 the next target.

Side Notes

Be careful shorting weakness into 113.173 to 112.619. Aggressive counter-trend buyers could come in on a test of this area. They see this zone as value.