USD/JPY Forex Technical Analysis – Could Pull Back into 109.634 – 109.223 Short-Term Retracement Zone

The Dollar/Yen is edging lower on Monday in a lackluster trade with many of the major players absent due to the U.S. Memorial Day holiday. Nonetheless, the Forex pair remains near a two-month high after a key measure of U.S. inflation showed stronger price gains than predicted on Friday, keeping alive expectations of an eventual tapering in the Federal Reserve’s asset buying.

At 10:28 GMT, the USD/JPY is trading 109.691, down 0.183 or -0.17%.

Last Friday, the U.S. reported that the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose 3.1% from a year ago, a tad above market expectations of a 2.9% rise. The USD/JPY rose on the news.

Early Monday, the USD/JPY is under pressure. This suggests the data had a limited impact over investors’ expectations that the Federal Reserve will keep the current pace of asset purchase for many months, possibly by the end of the year, before tapering it.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 110.200 will signal a resumption of the uptrend. A move through 108.561 will change the main trend to down.

The minor trend is also up. Monday’s lower-low changed 110.200 into a new minor top.

The short-term range is 110.966 to 107.479. The USD/JPY is currently testing the upper level of this zone. Since it is trading on the strong side of the zone, we are treating it as potential support.

Daily Swing Chart Technical Forecast

The early price action suggests the direction of the USD/JPY on Monday will be determined by trader reaction to 109.634.

Bullish Scenario

A sustained move over 109.634 will indicate the presence of buyers. Since the main trend is up, buyers could come in to defend this price level. If the new buying creates enough upside momentum then look for the rally to possibly extend into the minor top at 110.200.

Bearish Scenario

A sustained move under 109.634 will signal the presence of sellers. This won’t change the trend to down and it won’t shift momentum down either, but it could trigger a break into the 50% level at 109.223 over the short-run. Since the main trend is up, buyers could come in on a test of this level. If it fails then look for an acceleration to the downside.

Side Notes

Volume is light because of the U.S. banking holiday so be careful selling weakness or buying strength. It’s easy to get whip-sawed today.

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