USD/JPY Forex Technical Analysis – Could Be Setting Up Closing Price Reversal Top Under 105.677 Resistance

The Dollar/Yen is inching lower early Friday as bullish investors took profits and squared positions ahead of the release of the U.S. Non-Farm Payrolls report at 13:30 GMT. Earlier in the session, the Forex pair hit its highest level since November 11 before backing down.

Despite the slight setback, the Dollar/Yen is still in a position to post a strong weekly close amid signs of resilience in the labor market with the ADP private sector and weekly initial claims reports beating expectations.

At 06:56 GMT, the USD/JPY is trading 105.503, down 0.049 or -0.05%.

“The U.S. economy is exceptionally strong relative to other countries, causing dollar short covering,” said Tohru Sasaki, J.P. Morgan’s head of Japan market research in Tokyo, pointing to employment and manufacturing indicators as well as the pace of vaccinations.

Today’s Labor Department report on Non-Farm Payrolls is due to be released at 13:30 GMT and could be the source of volatility due to a wide range of estimates. Given the strong rally going into it, we could be looking at a “buy the rumor, sell the fact” event.

The Dow Jones estimate for that count is also 50,000, with the unemployment rate projected to hold steady at 6.7%. December’s survey showed a loss of 140,000, the first time the economy lost jobs since the recovery began in May.

While the economy has reclaimed 12.3 million jobs since May, that still leaves 10.7 million American workers unemployed, more than 5 million above pre-pandemic levels.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was confirmed earlier today when buyers took out yesterday’s high. The rally stopped just short of the November 11 main top at 105.677.

The main trend will change to down on a trade through the last swing bottom at 103.328. This is highly unlikely, but due to the prolonged move up in terms of price and time, the USD/JPY is ripe for a potentially bearish closing price reversal top.

The main range is 107.049 to 102.593. The USD/JPY is currently trading on the strong side of its retracement zone at 105.347 to 104.821. This zone is new support.

The short-term range is 105.677 to 102.593. Its retracement zone at 104.499 to 104.135 is additional support.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Friday will be determined by trader reaction to yesterday’s close at 105.552.

Bullish Scenario

A sustained move over 105.552 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for a possible breakout over the November 11 main top at 105.677. This is a potential trigger point for an acceleration to the upside. The daily chart indicates there is no visible resistance until the August 13 top at 107.049.

Bearish Scenario

A sustained move under 105.552 will signal the presence of sellers. This could drive the USD/JPY into 105.347. If this level fails then look for the start of a potential steep break into at least 104.821 over the short-run.

Side Notes

A close under 105.552 will form a closing price reversal top. This will not indicate a change in trend, but if confirmed, it could trigger the start of a 2 to 3 day correction of about 50% to 61.8% of the rally from 103.328.

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