USD/JPY Forex Technical Analysis – Early Signs of a Top as Swap Spreads Narrow

The Dollar/Yen is trading slightly lower on Tuesday. The price action suggests the dollar funding conditions may be easing slightly, compared to a week ago, though the tight trading range indicates things are far from normal. With the Fed pumping dollars into the system, it’s still a matter of time before we see if that money will flow into the right places.

At 08:52 GMT, the USD/JPY is trading 110.697, down 0.561 or -0.50%.

The three-month Dollar/Yen currency basis swap spread, seen as the market premium demanded for swapping Yen for Dollars, stood at 0.80%, down from a peak of around 1.4% last week but still far above normal levels around 0.2-0.4%. The premium persisted even after banks borrowed a record amount of dollars from the Bank of Japan.

Daily Technical Analysis

The main trend is down according to the daily swing chart. Momentum, however, is trending higher. A trade through 112.226 will change the main trend to up.

The minor trend is up. This is controlling the momentum.

The main range is 112.226 to 101.185. Its retracement zone at 108.008 to 106.706 is providing support. Holding above this area will continue to generate the current upside bias.

Daily Technical Forecast

Based on the early price action and the current price at 110.697, the direction of the USD/JPY the rest of the session on Tuesday is likely to be determined by trader reaction to the downtrending Gann angle at 110.789.

Bullish Scenario

A sustained move over 110.789 will indicate the presence of buyers. This could trigger a quick move into the next downtrending Gann angle at 111.507. This is the last potential resistance angle before the last main top at 112.226.

Taking out 112.226 will change the trend to up. This could spike prices into the April 24, 2019 main top at 112.405. This price is a potential trigger point for an acceleration into the December 13, 2018 main top at 113.710.

Crossing to the strong side of the steep uptrending Gann angle at 112.185 will also put the USD/JPY in a bullish position.

Bearish Scenario

A sustained move under 110.789 will signal the presence of sellers. This could trigger a steep break into the next downtrending Gann angle at 109.351. If this angle fails then look for the selling to possibly extend into the main Fibonacci level at 108.008.