USD/JPY Forex Technical Analysis – Strengthens Over 110.597, Weakens Under 110.426

The Dollar/Yen is trading lower early Wednesday as investors take to the sidelines ahead of a key report on U.S. producer price inflation and testimony by Federal Reserve Chair Jerome Powell. Later in the session, investors will also get the opportunity to react to the latest Fed Beige Book’s assessment of economic conditions.

Fed Chair Powell will speak to Congress on Wednesday and Thursday in an update on monetary policy. Part of his task will be selling the Fed’s still-easy policies in the wake of a strong economy and surging inflation. Powell has vowed that the current stance will remain intact until “substantial further progress” is made toward the Fed’s employment and inflation goals.

At 02:02 GMT, the USD/JPY is trading 110.493, down 0.150 or -0.14%.

On Tuesday, the USD/JPY strengthened after data showed U.S. inflation data for June coming in hotter than expected, raising the prospect that inflationary concerns are set to linger. U.S. consumer prices rose by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.

The Dollar/Yen was supported by a late session rise in U.S. Treasury yields in a delayed reaction to the CPI data, but gains were likely capped after stocks turned lower for the day and investors fled to the Japanese Yen for protection.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 109.535 will signal a resumption of the downtrend. The main trend will change to up on a move through 111.659.

The USD/JPY is currently trapped between a pair of retracement zones. One is support, the other resistance, creating some uncertainty but signaling impending volatility.

The minor range is 111.659 to 109.535. Its retracement zone at 110.597 to 110.848 is resistance. Since the main trend is down, sellers are trying to form a potentially bearish secondary lower top.

The short-term range is 109.192 to 111.659. Its retracement zone is 110.426 to 110.133. Aggressive counter-trend buyers are trying to form a potentially bullish secondary higher bottom.

On the downside, another potential support target comes in at 109.569 to 109.076.

Daily Swing Chart Technical Forecast

The early price action suggests the direction of the USD/JPY on Wednesday is likely to be determined by trader reaction to a pair of 50% levels at 110.426 and 110.597.

Bullish Scenario

A sustained move over 110.597 will indicate the presence of buyers. This could trigger a quick rally into 110.848. Look for sellers on the first test of this level.

Taking out 110.848 could trigger an acceleration to the upside with the next major target a resistance cluster at 111.659 to 111.715.

Bearish Scenario

A sustained move under 110.426 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the short-term Fibonacci level at 110.133. This is a potential trigger point for an acceleration to the downside with 109.569 to 109.535 the next likely target area.