USD/JPY Forex Technical Analysis – Strengthens Over 106.706, Weakens Under 106.450

The Dollar/Yen fell to a two-week low early Wednesday as risk sentiment returned to the market. On Tuesday, the selling was fueled by better-than-expected economic data from China, which painted a less gloomy picture than feared following the coronavirus outbreak there.

In today’s session investors are moving cautiously out of the U.S. Dollar after President Trump edged toward rolling back some restrictions put in place to contain the coronavirus pandemic.

At 06:44 GMT, the USD/JPY is trading 107.083, down 0.129 or -0.12%.

The greenback also remains under pressure following heavy measures by the Federal Reserve to boost dollar supply, however, analysts say it is too early for a full-scale retreat from safe-havens with the public health threat not yet eliminated.

The USD/JPY will face a major test later on Wednesday with the release of retail sales and industrial production, which is likely to provide more evidence of the economic costs of the lockdowns.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the last main bottom at 106.921 will reaffirm the downtrend. The next target after that is the main bottom at 101.185.

The main trend will change to up on a trade through 109.381.

The main range is 112.226 to 101.185. The USD/JPY is currently trading inside its retracement zone at 106.706 to 108.008.

The intermediate range is 101.185 to 111.715. Its retracement zone at 106.450 to 105.207 is the next potential downside target.

The short-term range is 111.715 to 106.921. Its retracement zone at 109.318 to 109.884 is resistance. This zone essentially stopped the rally on April 6 at 109.381.

Short-Term Outlook

Combining the intermediate and long-term retracement zones creates a support cluster at 106.706 to 106.450. This is the area we’ll be focusing on today.

Holding above 106.706 will tell us that aggressive counter-trend buyers are coming in to support the Forex pair. If this is able to create enough upside momentum then look for the rally to possibly extend into the main Fibonacci level at 108.008.

A sustained break under 106.450 will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into the short-term Fibonacci level at 105.207.

Side Notes

Look for volatility to hit the market at 12:30 GMT with the release of the U.S. Retail and Core Retail Sales reports. The Empire State Manufacturing Index report will also be released at that time.

Later in the session, investors will get the opportunity to react to reports on Capacity Utilization, Industrial Production and the Fed Beige Book.