USD/JPY Forex Technical Analysis – Closing Price Reversal Top Confirmed on Trade Through 105.406

Increased demand for risky assets drove the Dollar/Yen lower on Wednesday, helping to form a potentially bearish closing price reversal top. If confirmed, we could see the start of a two to three day break or a 50% correction of its last rally.

The catalyst behind the price action was the news that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin met in person for the first time since last month, raising hopes of Congress approving more aid to boost the U.S. economy and healthcare system before the November 3 election.

Losses were limited, however, after Pelosi and Mnuchin failed to strike a coronavirus aid deal, but said the pair would continue to talk.

At 07:10 GMT, the USD/JPY is trading 105.493, up 0.053 or +0.05%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum had been trending higher since the formation of the closing price reversal bottom on September 21. Wednesday’s closing price reversal top suggests the upside momentum may be stalling or coming to an end.

A trade through 105.804 will negate the closing price reversal top, while reestablishing the upside momentum. A move through 105.406 will confirm the chart pattern, setting up the potential for a 2 to 3 day break.

The main range is 107.049 to 104.002. Its retracement zone at 105.526 to 105.885 is resistance. This zone stopped the rally at 105.804 on Wednesday.

The minor range is 104.002 to 105.804. Its 50% level at 104.903 is the primary downside target.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the USD/JPY on Thursday is likely to be determined by trader reaction to the 50% level at 105.526.

Bearish Scenario

A sustained move under 105.526 will indicate the presence of sellers. Taking out 105.804 will confirm the closing price reversal top. This could trigger an acceleration to the downside with the minor 50% level at 104.903 the next likely downside target.

Bullish Scenario

A sustained move over 105.526 will signal the presence of buyers. If this creates enough upside momentum then we could see a drive into 105.804 and 105.885.

Taking out 105.804 will negate the closing price reversal top chart pattern, while a move through 105.885 could trigger an acceleration to the upside with potential upside targets coming in at 106.550, 106.948 and 107.049.