USD/JPY Forex Technical Analysis – Momentum Shifts to Down Amid Treasury Yield Drop

The Dollar/Yen is trading lower early Thursday amid profit-taking, followed a fourth session of lower U.S. Treasury rates. The move in interest rates is helping to tighten the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a less-attractive investment.

At 09:35 GMT, the USD/JPY is trading 128.632, down 1.345 or -1.03%. On Wednesday, the Invesco Currency Shares Japanese Yen Trust ETF (FXY) settled at $72.05, up $0.23 or +0.32%.

U.S. Treasury yields fell on Thursday morning, as investors digested hotter-than-expected inflation data, released in the previous session.

The yield on the benchmark 10-year Treasury note dropped 7 basis points to 2.8407% at 08.25 GMT. The yield on the 30-year Treasury bond moved 4 basis points lower to 2.9942%.

April’s consumer price index (CPI), released Wednesday, rose 8.3% year-on-year. That was higher than the anticipated 8.1% growth in inflation, but was below March’s 8.5% CPI reading. However, the size of the gain showed the pace of the increase had slowed.

Nonetheless, the latest inflation reading supports the Federal Reserve’s plans to more aggressively hike interest rates to combat persistent pricing pressures, fueling recession fears.

According to Bob Parker, investment committee member at Quilvest Wealth Management, believes the chances of a recession had risen from between 10% and 15% a few months ago, to close to 30%, with a 1-2 year time horizon.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal bottom on May 9.

A trade through 131.348 will negate the closing price reversal top and signal a resumption of the uptrend. A move through 126.945 will change the main trend to down.

The minor range is 126.945 to 131.348. The USD/JPY is trading on the weak side of its pivot at 129.147, making it resistance.

The next two downside targets are a pair of 50% levels at 127.410 and 126.316.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Thursday is likely to be determined by trader reaction to 129.147.

Bearish Scenario

A sustained move under 129.147 will indicate the presence of sellers. If this generates enough downside momentum then look for a break into the 50% level at 127.410. If this fails as support then look for the selling to extend into the main bottom at 126.945, followed by the 50% level at 126.316. This level is a potential trigger point for an acceleration to the downside.

Bullish Scenario

A sustained move over 129.147 will signal the presence of buyers. If this generates enough upside momentum then look for a surge into 129.877. Overtaking this level will indicate the buying is getting stronger with the minor top at 130.813 the next target, followed by the main top at 131.348.