USD/JPY Forex Technical Analysis – Looking for Retest of Major Retracement Zone at 113.173 – 112.619

The Dollar/Yen closed lower on Friday after a U.S. Consumer Price Inflation (CPI) report came in as expected, disappointing those investors who had been bracing for a much higher number. They then increased bets that the actual number would not change the pace of interest rate hikes.

Consumer prices continue to surge as inflation accelerated to its fastest pace since 1982, driven largely by the cost of energy, vehicles and food.

On Friday, the USD/JPY settled at 113.392, down 0.068 or -0.06%. The Invesco CurrencyShares Japanese Yen Trust (FXY) settled at $82.77, down $0.02 or -0.02%.

The CPI, which measures the cost of various goods and services, jumped up another 0.8% on a seasonally adjusted basis in November, a 6.8% increase on a year-over-year basis compared to last November, according to a Labor Department report released Friday.

The core price index, which excludes volatile food and energy prices, climbed 4.9% compared to last year.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 112.538 will signal a resumption of the downtrend. A move through 115.519 will change the main trend to up.

The minor trend is also down. A trade through 113.950 will change the minor trend to up and shift momentum to the upside.

The main range is 110.826 to 115.519. Its retracement zone at 113.173 to 112.619 is the primary downside target. This zone stopped the selling in late November/early December.

The short-term range is 115.519 to 112.538. Its retracement zone at 114.029 to 114.380 is the primary upside target and potential resistance area. Since the main trend is down, sellers are going to try to form a potentially bearish secondary lower top on a test of this area.

Short-Term Outlook

The direction of the USD/JPY early Monday is likely to be determined by trader reaction to 113.588.

Bearish Scenario

A sustained move under 113.588 will indicate the presence of sellers. This could trigger a break into the main 50% level at 113.173. This is a potential trigger point for an acceleration to the downside with the next targets 112.619 and 112.538.

The minor bottom at 112.538 is a potential trigger point for an acceleration to the downside.

Bullish Scenario

A sustained move over 113.588 will signal the presence of buyers. If this move creates enough upside momentum then look for a surge into 113.950, followed by 114.029.