USD/JPY Forex Technical Analysis – Hawkish Fed Could Trigger Breakout Over 110.329 into 110.966

The Dollar/Yen is trading flat early Wednesday as investors prepare for Federal Reserve announcements that could determine the direction of U.S. Treasury yields for several months. A hawkish Fed should be supportive for the Forex pair since it is likely to widen the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a more attractive investment.

At 02:14 GMT, the USD/JPY is trading 110.096, up 0.030 or +0.03%.

The Federal Reserve Open Market Committee’s two-day policy meeting is set to conclude on Wednesday afternoon, followed by a press conference with Fed Chairman Jerome Powell.

The Fed is not expected to take any policy action in its meeting, though investors will be listening to Powell’s comments closely for any signals of the central bank’s eventual asset purchase tapering plans.

In my opinion, the mention of starting tapering in September or December will spike the USD/JPY higher. The policy vote is also going to be an important indicator. Traders will be watching to see if any previous doves turn hawkish. This will also be supportive for the Dollar/Yen.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, but momentum is trending higher. A trade through 110.329 will change the main trend to up. A move through 109.192 will signal a resumption of the downtrend.

The minor range is 110.329 to 109.192. Its 50% level at 109.761 is potential support.

The main range is 110.966 to 107.479. The USD/JPY is currently trading on the strong side of its retracement zone at 109.634 to 109.223, making it support. A minor 50% level at 109.445 falls inside this zone, validating it as potential support also.

The short-term range is 107.479 to 110.329. Its retracement zone at 108.904 to 108.568 is another potential support zone.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY is likely to be determined by trader reaction to 110.168 and 109.988.

Bullish Scenario

A sustained move over 110.168 will indicate the presence of buyers. The first target is the main top at 110.329. This is a potential trigger point for an acceleration to the upside with the March 31 main top at 110.966 the next major upside target.

Bearish Scenario

A sustained move under 109.988 will indicate the presence of sellers. This could lead to a labored break with potential targets a series of retracement levels at 109.761, 109.634, 109.445 and 109.223. The main bottom at 109.192 is also a downside target and a potential trigger point for an acceleration to the downside.