USD/JPY Forex Technical Analysis – Closing Price Reversal Bottom Could Fuel Further Short-Covering

The Dollar/Yen is trading slightly lower early Thursday after producing a potentially bullish closing price reversal bottom the previous session. The chart pattern doesn’t indicate a change in trend, but it could be an indication that the buying is greater than the selling at current price levels.

Profit-taking and position-squaring ahead of Thursday’s release of the U.S. Gross Domestic Product report may be behind the sudden change in direction. Aggressive counter-trend buyers could’ve come in to defend the main bottom at 109.010. Perhaps the “doom and gloom” headlines over the trade dispute finally brought in enough of the public to produce an oversold market.

At 06:38 GMT, the USD/JPY is trading 109.554, down 0.038 or -0.03%.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The closing price reversal bottom at 109.147 is an early sign that momentum could be shifting to the upside. A trade through 109.700 will confirm the chart pattern. This will shift momentum to the upside and could lead to a 2 to 3 day counter-trend rally.

A trade through 109.147 will negate the chart pattern and signal a resumption of the downtrend. A move through 109.010 will reaffirm the downtrend. The main trend will change to up on a trade through 110.677. This is highly unlikely however.

The short-term range is 109.010 to 110.677. Its retracement zone at 109.647 to 109.844 is the first resistance.

The main range is 111.700 to 109.010. Its retracement zone at 110.355 to 110.672 is also resistance. This zone stopped the rally at 110.677 on May 21.

The major support is a 50% level at 108.798.

Daily Technical Forecast

Based on the early price action on Thursday, the direction of the USD/JPY the rest of the session is likely to be determined by trader reaction to the Fibonacci level at 109.647.

Bearish Scenario

A sustained move under 109.647 will indicate the presence of sellers. The first target is an uptrending Gann angle at 109.416. If this angle fails then look for the selling to possibly extend into the closing price reversal bottom at 109.147, followed by the main bottom at 109.010. If the latter fails then look for the selling to possibly extend into the major 50% level at 108.798.

Bullish Scenario

A sustained move over 109.647 will signal the presence of buyers. Taking out yesterday’s high at 109.700 will confirm the closing price reversal bottom. This could trigger a rally into a cluster of levels at 109.802, 109.823 and 109.844.

The 50% level at 109.844 is the potential trigger point for an acceleration to the upside with the next target angle coming in at 110.240.