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James Hyerczyk

The Dollar/Yen is bouncing higher on Tuesday after hitting a four-month low the previous session. The rally was fueled by position-squaring and short-covering ahead a Federal Reserve monetary policy announcement on Wednesday and as U.S. policymakers edged closer to approving another massive stimulus package.

The world’s reserve currency has been tumbling since July 20 after trading mostly rangebound since early April as cracks in the U.S. coronavirus recovery and crumbling yields sent investors into higher yielding currencies. The plunge in U.S. yields tightened the spread with Japanese Government yields, making the Japanese Yen a more attractive investment.

At 08:30 GMT, the USD/JPY is trading 105.589, up 0.213 or +0.20%.


Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 105.118 will signal a resumption of the downtrend. The main trend will change to up on a trade through 107.530. This is highly unlikely, but there is room for a normal 50% retracement of the recent break.

The minor range is 107.530 to 105.118. Its 50% level at 106.324 is the first upside target.

The main range is 112.226 to 101.185. Its retracement zone at 106.706 to 108.008 is the second retracement zone resistance. This zone is also controlling the longer-term direction of the USD/JPY.


Daily Swing Chart Technical Forecast

The direction of the USD/JPY the rest of the session on Tuesday is likely to be determined by trader reaction to 105.118.

Holding above 105.118 will indicate the presence of buyers. If this creates enough upside momentum over the near-term then look for a possible rally into the minor 50% level at 106.324, followed closely by the main 50% level at 106.706.

Taking out 105.118 will signal the presence of sellers. If momentum increases on the move then look for a potential acceleration to the downside. The daily chart shows there is plenty of room to the downside with the next major downside target the March 9 main bottom at 101.185.

A third scenario is possible. While taking out 105.118 signals a resumption of the downtrend, turning higher for the session after posting a lower-low will put the Forex pair in a position to form a potentially bullish closing price reversal bottom. This won’t change the trend to up, but it could trigger a 2 to 3 day counter-trend rally with 106.324 the first target.

For a look at all of today’s economic events, check out our economic calendar.

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