USD/JPY Forex Technical Analysis – Reaction to 134.901 – 135.960 Retracement Zone Sets Near-Term Tone

The Dollar/Yen is trading slightly lower early Tuesday as prices continue to consolidate ahead of Wednesday’s major U.S. consumer inflation data. The outcome of the report could help determine the size of the next Federal Reserve interest rate hike, scheduled for September 21.

At 04:28 GMT, the USD/JPY is trading 134.856, down 0.187 or -0.14%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $69.24, down $0.03 or -0.04%.

The USD/JPY firmed slightly on Monday in an attempt to build on the strong gains made at the end of last week after surprisingly strong U.S. jobs data.

Traders currently see a 64.5% probability the Fed continues the pace of 75 basis-point interest-rate increases at its next policy decision, from about 41% before the strong payrolls data on Friday raised worries that wage growth would fuel inflationary pressures.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 139.389 will change the main trend to up. A move through 130.412 will signal a resumption of the downtrend.

The main range is 126.362 to 139.389. Its retracement zone at 132.876 to 131.338 is support.

The short-term range is 139.389 to 130.412. Its retracement zone at 134.901 to 135.960 is resistance. This zone stopped the rally on Monday at 135.568. It is currently being tested.

Daily Swing Chart Technical Forecast

Trader reaction to the short-term 50% level at 134.901 is likely to determine the direction of the USD/JPY early Tuesday.

Bullish Scenario

A sustained move over 134.901 will indicate the presence of buyers. If this move generates enough upside momentum then look for a surge into the Fibonacci level at 135.960. This price is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 134.901 will signal the presence of sellers. This could trigger the start of an acceleration to the downside with the main 50% level at 132.876 the next likely downside target.

Side Notes

The key area to watch over the short-run is 134.901 to 135.960. Since the main trend is down, sellers could be defending this area. They will be trying to form a potentially bearish closing price reversal top. Aggressive counter-trend buyers are going to try to take out 135.960.