USD/JPY Forex Technical Analysis – Safe-Haven Liquidation Should Fuel Short-Covering Rally

The Dollar/Yen closed higher on Friday as appetite for risk encouraged investors to exit the safe-haven Japanese Yen. Traders also responded to a steep rise in U.S. Treasury yields which helped widen the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a more attractive asset.

The USD/JPY settled at 108.520, up 0.881 or +0.82%.

The catalysts behind the rally were stronger than expected U.S. jobs data and comments from Fed Chair Jerome Powell. Both eased fears over a slowing economy.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. Friday’s inside move suggests investor indecision and impending volatility. The Forex pair is in no position to change the main trend to up, however, a trade through 105.180 will reaffirm the downtrend with the next target the 104.600 main bottom from March 26, 2018.

The minor trend is also down. A trade through 111.430 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 111.430 to 105.180. Its retracement zone at 108.305 to 109.043 is the first upside target.

The main range is 113.710 to 105.180. Its retracement zone at 109.445 to 110.452 is the primary upside target.

Since the main trend is down, sellers could come in on a test of these retracement zones. In any case, the current setup suggests a labored rally until buyers can overcome 110.452.

Daily Swing Chart Technical Forecast

Based on Friday’s price action and the close at 108.520, the direction of the USD/JPY on Monday is likely to be determined by trader reaction to the short-term 50% level at 108.305.

Bullish Scenario

A sustained move over 108.305 will indicate the presence of buyers. The next two upside targets are 109.043 and 109.445. The latter is a potential trigger point for an acceleration into 110.452.

Bearish Scenario

A sustained move under 108.305 will signal the presence of sellers. The first downside target is the minor pivot at 106.888. Counter-trend buyers could show up on a test of this level, they are going to try to form a secondary higher bottom.

Watch Treasury yields and the stock market for direction. If both continue to rise then more investors are likely to blow out of the safe-haven Japanese Yen.