USD/JPY Forex Technical Analysis – Has to Hold 108.008 – 106.706 to Sustain Upside Momentum

The Dollar/Yen is trading slightly lower and in a very tight range late Friday as investors square positions ahead of the weekend. Additionally, the volume is well below average with the major international banks closed due to Good Friday.

Earlier in the session, the U.S. Labor Department reported that Consumer Inflation and Core Inflation figures came in lower than expected on Friday.

At 19:59 GMT, the USD/JPY is trading 108.390, down 0.109 or -0.10%.

The U.S. CPI reading came in at -0.4%, which was lower than the -0.3% that traders were expecting and also much lower than last month’s figure of 0.1%. The U.S. Core CPI was -0.1%, which was lower than the market forecast of 0.1% and also the previous report of 0.2%.

The government report said that lower crude oil prices, which have driven down the price of gasoline, was responsible for the sharp drop in the gasoline index and a significant contributor to the downbeat CPI data.

The 10% drop in the gasoline index also outweighed the gain in the food index, which rose 0.3%. This is the first time since January 2010 that the U.S. Core CPI showed a decline.

Daily Technical Analysis

The main trend is down according to the daily swing chart. A trade through 106.921 will signal a resumption of the downtrend. A move through 111.715 will change the main trend to up.

Taking out 108.211 will make 109.381 a new main top.

The short-term range is 111.715 to 106.921. Its retracement zone at 109.318 to 109.884 is resistance. This zone stopped the buying at 109.381 on April 6.

The main range is 112.226 to 101.185. Its retracement zone at 108.008 to 106.706 is the nearest support zone. This zone stopped the selling at 106.921 on April 1. This area is controlling the longer-term direction of the Dollar/Yen

Short-Term Outlook

Trader reaction to 108.008 to 106.706 will determine the near-term direction of the USD/JPY.

Helping to generate the upside momentum is the increasing demand for risky assets. Weighing on the Dollar/Yen, however, is the shedding of the safe-haven dollar.

The most bullish combination for the USD/JPY over the near-term will be the end of dollar selling and rising demand for stocks.

I can see an upside bias developing on a sustained move over 109.381, and the downtrend resuming if 106.921 fails as support.