USD/JPY Forex Technical Analysis – Set-up for Test of 108.793 to 107.940 Retracement Zone

The Dollar/Yen finished lower on Friday amid worries about escalating tensions between Washington and Beijing over trade and technology. Sellers are also reacting to the plunge in Treasury yields as investors have begun to price in a possible U.S. economic slowdown and a potential rate cut by the U.S. Federal Reserve. The spread between U.S. Government bonds and Japanese Government bonds is tightening, making the U.S. Dollar a less-attractive investment.

On Friday, the USD/JPY settled at 109.295, down 0.299 or -0.27%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 109.010 will signal a resumption of the downtrend. The main trend will change to up on a move through the last swing top at 110.677.

The short-term range is 109.010 to 110.677. Its retracement zone at 110.355 to 110.672 is resistance. This zone stopped the rally on May 21.

The main range is 105.180 to 112.405. Its retracement zone at 108.793 to 107.940 is the primary downside target.

Daily Swing Chart Technical Forecast

Monday is a U.S. bank holiday so look for limited trading and light volume.

Given the current downside momentum, look for sellers to continue to push the USD/JPY into the main bottom at 109.010. If it fails then look for an extension of the break into the main 50% level at 108.793, followed by the next main bottom at 108.495. This is the trigger point for an even steeper decline into the main Fibonacci level at 107.940.

We’re not looking for much of a move to the upside. If there is a rally then it’s likely to be short-covering or position-squaring.