USD/JPY Forex Technical Analysis – Needs Dramatic Closing Price Reversal Bottom to Stop Selling Pressure

Support for the Dollar/Yen continued to erode on Tuesday will sellers taking out the September 7 bottom at 110.379. The move was fueled by safe-haven buying into the Japanese Yen in response to lower stock markets in Asia. Investors are also bracing for further weakness in the U.S. markets when they reopen on Wednesday.

At 1911 GMT, the USD/JPY is trading 110.150, down 0.302 or -0.27%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier in the session when sellers took out the September 7 main bottom at 110.379.

The Forex pair is in no position to change the main trend to up, but it is down eight sessions since the last main top which puts it inside the window of time for a closing price reversal bottom. At this point in the sell-off the only chart pattern that is strong enough to trigger a meaningful short-covering rally is a dramatic reversal to the upside. This chart pattern will not change the trend to up, but it could trigger a 2 to 3 day counter-trend rally.

The main range is the May 29 bottom at 108.114 to the October 3 top at 114.580. It 50% to 61.8% retracement zone at 111.347 to 110.584 is resistance.

The short-term range is the August 21 bottom at 109.770 to the October 3 top at 114.580. Its retracement zone at 112.175 to 111.607 is additional resistance.

Combining the two retracement zones creates a tight resistance zone at 111.347 to 111.607. Closing below these retracement zones is also contributing to the current downside bias.

Daily Swing Chart Technical Forecast

Based on Tuesday’s price action, the direction of the USD/JPY over the near-term is likely to be determined by trader reaction to the Fibonacci level at 110.584.

Bullish Scenario

Overtaking and sustaining a rally over 110.584 will signal the return of buyers. If this move can create enough upside momentum then we could see a strong counter-trend rally into the resistance cluster at 111.347 to 111.607.

Bearish Scenario

A sustained move under 110.584 will indicate the presence of sellers. Taking out 110.379 will indicate the selling is getting stronger.

If this move generates enough downside momentum then look for the selling pressure to extend into the August 21 bottom at 109.770.

The selling pressure will increase if 109.770 is taken out. This could trigger a further decline into the June 26 bottom at 109.360 and the June 18 bottom at 109.179.

The main bottom at 109.179 is very important because it is the trigger point for an acceleration to the downside with the May 29 bottom at 108.114 the next major downside target.