USD/JPY Forex Technical Analysis – Strengthens Over 105.347, Weakens Under 104.821

The Dollar/Yen is trading flat early Wednesday after hitting its highest level since November 11 the previous session. The catalyst behind the recent price surge has been optimism over a speedy U.S. economic recovery. Bullish traders feel the U.S. has an advantage over Japan in terms of economic growth and vaccinations.

At 06:05 GMT, the USD/JPY is trading 105.017, up 0.024 or +0.02%.

Since mid-January, the Forex pair has also been supported at times by rising U.S. Treasury yields which are helping to widen the spread been U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive asset.

Increasing demand for risky assets has also been supportive with investors borrowing in Yen from Japanese banks and converting the funds to U.S. Dollars to buy U.S. equities. This is also known as the carry trade.

When there has been a pullback in the Dollar/Yen, it has been tied to safe-haven buying of the Japanese currency.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 105.174 will signal resumption of the uptrend. The main trend will change to down on a move through 103.328. This is highly unlikely but today is the ninth day up from that bottom, putting the USD/JPY inside the window of time for a potentially bearish closing price reversal top.

The main range is 107.049 to 102.593. The USD/JPY is currently testing its retracement zone at 104.821 to 105.347. Trader reaction to this zone will determine the near-term direction of the Forex pair.

The short-term range is 105.677 to 102.593. Its retracement zone at 104.499 to 104.135 is support.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Wednesday is likely to be determined by trader reaction to yesterday’s high at 105.174.

Bullish Scenario

A sustained move over 105.174 will indicate the presence of buyers. This could trigger a rally into the main Fibonacci level at 105.347. Look for sellers on the first test of this level. Overcoming it could trigger an acceleration to the upside with the November 11 top at 105.677 the next likely upside target.

Bearish Scenario

A sustained move under 105.174 will indicate that the buying is getting weaker or the selling is getting stronger. This could trigger a break into the main 50% level at 104.821. Since the main trend is up, buyers could come in on a test of this level. If the 50% level fails as support then look for the selling to possibly extend into the short-term Fibonacci level at 104.499.

Side Notes

Taking out 105.174 then closing lower for the session will form a potentially bearish closing price reversal top. If confirmed, this could trigger the start of a 2 to 3 day correction.

For a look at all of today’s economic events, check out our economic calendar.