USD/JPY Forex Technical Analysis – Strengthens Over 110.537, Weakens Under 110.191, but Needs Help from Yields

The Dollar/Yen traded flat on Thursday with gains capped by Wednesday’s weaker than expected U.S. Core Consumer Inflation (CPI) report and losses limited by a stronger-than-expected U.S. Producer Price Index (PPI) report released earlier in the session. The price action basically mirrored the movement in U.S. Treasury yields.

On Thursday, the USD/JPY settled at 110.433, down 0.003 or -0.00%.

On Wednesday, the USD/JPY sold off sharply after data showed U.S. consumer price increases slowed in July, easing concerns the Federal Reserve will imminently signal a scaling back of bond purchases.

However, a report from the Labor Department on Thursday showed U.S. producer prices increased more than expected. The report suggested inflation could remain high as strong demand fueled by the recovery continues to hurt supply chains.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, the formation of a closing price reversal top on Wednesday suggests momentum may be getting ready to shift to the downside.

A trade through 110.800 will negate the closing price reversal top and signal a resumption of the uptrend.

A move through 110.313 will confirm the closing price reversal top. This won’t change the main trend to down, but it could trigger the start of a 2 to 3 day correction.

The short-term range is 111.659 to 108.722. The USD/JPY is currently trading inside its retracement zone at 110.191 to 110.537.

The minor range is 108.722 to 110.800. Its 50% level at 109.761 is the next potential downside target.

The major support area is the retracement zone at 109.569 to 109.076.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY early Friday is likely to be determined by trader reaction to the pivot at 110.557.

Bearish Scenario

A sustained move under 110.557 will indicate the presence of sellers. Holding under 110.537 will also indicate the selling pressure is getting stronger.

The first downside targets are 110.313 and 110.191. The latter is a potential trigger point for an acceleration to the downside with the next targets a pair of 50% levels at 109.761 and 109.569.

Bullish Scenario

A sustained move over 110.557 will signal the presence of buyers. The first potential upside target is 110.800. This is a potential trigger point for an acceleration to the upside. The daily chart shows there is plenty of room to run over this level with the nearest resistance coming in at 111.659 and 111.715.