USD/JPY Forex Technical Analysis – Despite Slight Gain, Dollar/Yen Remains Vulnerable to Near-Term Setback

The Dollar/Yen is edging higher late in the session on Friday as traders tried to recover from a two-day setback. Boosting the Forex pair is a surge in U.S. equity markets, which is offsetting a drop in U.S. Treasury yields. Nonetheless, the market remains vulnerable to a near-term setback as investors scale back expectations on the Fed rate hikes amid indications of a slowdown in economic growth.

At 18:23 GMT, the USD/JPY is trading 135.212, up 0.247 or +0.18%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $69.23, down $0.14 or -0.20%.

Ahead of Friday’s action, data showed that investors are expecting the Fed to lower the size of rate hikes after another 75 basis point increase in July.

In economic news, data from the Commerce Department showed a significant rebound in new home sales in the month of May. Meanwhile, a separate report from the University of Michigan showed consumer sentiment in the U.S. tumbled by slightly more than initially estimated in the month of June. However, Revised UofM Inflation Expectations dipped to 5.3% from 5.4%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on June 22.

A trade through 136.715 will signal a resumption of the uptrend. A trade through 131.495 will change the main trend to down.

The minor range is 131.495 to 136.715. Its retracement zone at 134.105 to 133.489 is the nearest support area.

Daily Swing Chart Technical Forecast

Trader reaction to 135.284 is likely to determine the direction of the USD/JPY into Friday’s close.

Bullish Scenario

A sustained move over 135.284 will indicate the presence of buyers. If this creates enough upside momentum then look for a late session surge into 135.492. Overcoming this level will indicate the buying is getting stronger. This could lead to a retest of 136.715 over the short-run.

Bearish Scenario

A sustained move under 135.284 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into a minor 50% level at 134.105, followed closely by a minor Fibonacci level at 133.489. The latter is a potential trigger point for an acceleration to the downside with a support cluster at 131.539 – 131.495 the next major target.