USD/JPY Forex Technical Analysis – In Position to Challenge 7-Month Low at 126.362 Ahead of Key BOJ Meeting

The Dollar/Yen is inching higher on Monday, hovering slightly above an seven month low with investors waiting nervously to see if the Bank of Japan will defend its super-sized stimulus policy at a pivotal meeting on Wednesday.

At 07:02 GMT, the USD/JPY is trading 127.947, up 0.087 or +0.07%. This is slightly above the intraday low at 127.227. On Friday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.97, up $0.74 or +1.02%.

The USD/JPY fell sharply late last week on speculation the Bank of Japan (BOJ) will revise its ultra-loose monetary policy. The selling pressure began on Thursday after the Yomiuri newspaper said BOJ officials would review the side effects of the central bank’s yield curve control, or YCC, policy at their meeting on Wednesday.

At the meeting, the YCC could be revised, or even abandoned, opening the door to a stronger Japanese Yen. Meanwhile, the yield on Japan’s benchmark 10-year government bonds breached the central bank’s new ceiling on Friday, adding to pressure for the yield control policy to  be scrapped or revised.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the May 24 main bottom at 126.362 will reaffirm the downtrend. A move through 134.775 will change the main trend to up.

The minor trend is also down. A trade through 132.872 will change the minor trend to up. This will shift the momentum.

The minor range is 132.872 to 127.227. Its pivot at 130.050 is potential resistance.

Daily Swing Chart Technical Forecast

Trader reaction to 127.859 is likely to determine the direction of the USD/JPY on Monday.

Bullish Scenario

A sustained move over 127.859 will indicate the presence of buyers. If this move creates enough upside momentum then look for a short-covering rally into the pivot at 130.050.

Look for sellers on the first test of 130.050. Overtaking this level could extend the rally into the minor top at 132.872.

Bearish Scenario

A sustained move under 127.859 will signal the presence of sellers. This could trigger a further break into the May 24 bottom at 126.362.

A trade through 126.362 will indicate the selling pressure is getting stronger. This could trigger an acceleration to the downside with the next major target the March 31 main bottom at 121.284.