USD/JPY Forex Technical Analysis – Strengthens Over 109.938, Weakens Under 109.781

The Dollar/Yen closed higher on Friday as investors continued to bet on a reduction of asset purchases by the Federal Reserve before the end of the year. The Fed holds a two-day monetary policy meeting on September 21-22 and is expected to open discussions on reducing its monthly bond purchases, while tying any actual change to U.S. job growth in September and beyond.

On Friday, the USD/JPY settled at 109.975, up 0.233 or +0.21%.

Speculation about a Fed taper this year gathered pace after U.S. retail sales unexpectedly increased in August, data showed Thursday, rising 0.7% from the previous month despite expectations of a 0.8% fall. A business survey also showed a big improvement.

In other news, the yen has shown limited reaction to the ruling Liberal Democratic Party’s leadership race, which formally kicks off on Friday ahead of a September 29 vote. The LDP’s parliamentary dominance means the party’s new leader will become prime minister.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 109.113 will signal a resumption of the downtrend. A move through 110.448 will change the main trend to up.

The main range is 107.479 to 111.659. Its retracement zone at 109.569 to 109.076 is support. This zone stopped the selling on September 15 at 109.113.

The minor range is 110.448 to 109.113. The USD/JPY closed slightly above its retracement zone at 109.938 to 109.781, making it new support.

The short-term range is 111.650 to 108.722. Its retracement zone at 110.191 to 110.537 is the next upside target zone and potential resistance. The last main top at 110.448 falls inside this zone, increasing its importance.

Daily Swing Chart Technical Forecast

The early direction of the USD/JPY on Monday is likely to be determined by trader reaction to 109.938.

Bullish Scenario

A sustained move over 109.938 will indicate the presence of buyers. The first upside target is 110.191. Look for sellers on the first test. They are going to be defending the trend and the main top at 110.448. Taking out this top will change the main trend to up, likely extending the rally into 110.537.

Bearish Scenario

A sustained move under 109.938 will signal the presence of sellers. The first downside target is 109.781, followed closely by 109.569.

The downside pressure could increase if 109.569 fails as support. The first downside target is 109.596, followed by the main bottom at 109.113.