USD/JPY Forex Technical Analysis – Strengthens Over 104.499, Weakens Under 104.135

The Dollar/Yen is trading higher early Tuesday as the prospect of massive fiscal stimulus pushed U.S. yields higher. The Forex pair started the week strong as benchmark Treasury yields rose to 10- month highs on Monday as investors adjusted for higher government spending under the Joe Biden administration and before the Treasury will sell new long-dated supply.

At 02:50 GMT, the USD/JPY is trading 104.309, up 0.076 or +0.07%.

Expectations of a multitrillion-dollar stimulus plan, the belief that the Federal Reserve will not push back on rising interest rates and new Treasury supply this week are helping yields to rise. Benchmark 10-year Treasury notes reached 1.138% on Monday, the highest since March 20. The yield curve between two-year and 10-year notes steepened to 99.9 basis points, the widest gap since July 2017.

Essentially, the widening of the spread between U.S. Government bond yields and Japanese Government bond yields are making the U.S. Dollar a more attractive asset than the Japanese Yen.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 104.398 will signal a resumption of the uptrend. A move through the pair of main tops at 104.751 and 104.761 will reaffirm the uptrend.

The main trend will change to down on a trade through 102.593.

The minor range is 102.593 to 104.398. Its 50% level at 103.496 is a potential downside target and support.

The short-term range is 105.677 to 102.593. Its 50% to 61.8% retracement zone at 104.135 to 104.499 is currently being tested. This zone is controlling the near-term direction of the USD/JPY.

The main range is 107.049 to 102.593. Its retracement zone at 104.821 to 105.347 is another upside target. This zone is controlling the longer-term direction of the market.

Daily Swing Chart Technical Forecast

The early price action suggests the direction on Tuesday will be determined by trader reaction to 104.135.

Bullish Scenario

A sustained move over 104.135 will indicate the presence of buyers. This could trigger a rally into a small cluster at 104.398, 104.499 and 104.579.

Overtaking 104.579 will indicate the buying is getting stronger with another resistance cluster at 104.751, 104.761 and 104.821 the next potential upside target.

Bearish Scenario

A sustained move under 104.135 will be an early sign of weakness. This could trigger an acceleration to the downside with the first target a pivot at 103.496.

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