USD/JPY Forex Technical Analysis – Risk Sentiment Driving Direction; Strong Over 106.306, Weak Under 106.077

The Dollar/Yen is inching higher early Friday with the price action mirroring the movement in the U.S. stock futures. Despite a slew of economic data from Japan this week, nearly all of the price movement this week has been dictated by risk sentiment.

Early in the week, traders largely shrugged off the weaker-than-expected GDP data, instead choosing to react to the steep plunge in U.S. equity markets. This move, led by a drop in technology shares, helped increase the Japanese Yen’s appeal as a safe-haven asset.

Later in the week, the Dollar/Yen recovered as the stock market rebounded. The price action early Friday shows the Forex pair trading lower for the week. The movement in the stock market is likely to continue to drive the direction of the Dollar/Yen although we could see a reaction to the U.S. consumer inflation report.

At 04:19 GMT, the USD/JPY is trading 106.167, up 0.032 or +0.03%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, but actually, the USD/JPY has been trading inside the wide range from August 28. A trade through 107.049 will change the main trend to up. A move through 105.104 will signal a resumption of the downtrend.

The minor trend is also down. A trade through 106.550 will change the minor trend to up. This will also shift momentum to the upside. A move through 105.798 will indicate the selling pressure is increasing.

On the downside, the support is the retracement zone at 105.619 to 105.282.

On the upside, the major resistance is 107.019 to 107.687.

The near-term range is 107.049 to 105.104. For the past two week, the USD/JPY has been straddling its retracement zone at 106.077 to 106.306.

Daily Swing Chart Technical Forecast

Based on the price action this week, the direction of the USD/JPY on Friday is likely to be determined by trader reaction to the near-term Fibonacci level at 106.306 and the 50% level at 106.077.

Bearish Scenario

A stock market break on Friday is likely to drive the USD/JPY through the 50% level at 106.077. If the momentum is strong enough then look for the selling to possibly extend into 105.798 then 105.619.

Bullish Scenario

If equities recover and rally then look for a test of 106.306. If the momentum is strong enough then look for a potential breakout to the upside with 106.550 the next target.