USD/JPY Forex Technical Analysis – Main Trend Changes to Down after Powell Hints at Rate Cut

Any doubts about the Japanese Yen’s status as a safe-haven asset were put to bed on Friday after the currency rallied to a 7-week high against the U.S. Dollar on Friday. The Yen posted its largest daily gain since May 2017 as investors moved into the safe-haven currency in response to further weakness in U.S. equity markets and dovish comments from Federal Reserve Chairman Jerome Powell.

On Friday, the USD/JPY settled at 108.064, down 1.599 or -1.46%.

Powell suggested the central bank could cut interest rates in the wake of the coronavirus. The central bank chief said the Fed will “act as appropriate” to support the economy in the face of risks posed by the coronavirus outbreak, though he said the economy remained in solid condition.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down on Friday when sellers took out the last swing bottom at 108.313. It was reaffirmed later in the session when sellers took out the next main bottom at 107.651.

The main trend will change to up on a trade through 112.226. This is highly unlikely, but Monday will be seven days from the last main top, which puts the USD/JPY in the window of time for a closing price reversal bottom. This chart pattern won’t change the trend to up, but it could trigger a short-term correction.

The main range is 104.463 to 112.226. On Friday, the USD/JPY closed inside its retracement zone at 108.345 to 107.428.

The longer-term range is 112.405 to 104.463. Its retracement zone at 108.434 to 109.371 is now resistance.

Combining the two retracement zones forms a potential resistance cluster at 108.345 to 108.434.

Short-Term Outlook

Trader reaction to the resistance cluster at 108.345 to 108.434 is likely to set the tone of the USD/JPY on Monday.

A sustained move under 108.434 will indicate the selling is getting stronger. This could trigger a break into the uptrending Gann angle at 106.526. This is followed by another main bottom at 106.485.

If 106.485 fails then look for the selling to extend into the next uptrending Gann angle at 105.494. This is the last potential support angle before the August 26, 2019 main bottom at 104.463.

Overcoming 108.434 will single the return of buyers. Overtaking the uptrending Gann angle at 108.588 will indicate the buying is getting stronger. This could trigger a further rally into the major Fibonacci level at 109.371.

Side Notes

We’re expecting a lower opening on Monday following the release of bearish Chinese Manufacturing and Non-Manufacturing PMI reports. This news could send global equity markets sharply lower, while increasing the Japanese Yen’s appeal as a safe-haven asset.