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James Hyerczyk

The Dollar/Yen is trading lower early Thursday after posting a steep short-covering rally the previous session. That move was fueled by a huge rally in the U.S. stock markets which chased investors out of their safe-haven Japanese Yen positions. Although the rally was impressive, it may have been enough to alleviate some of the oversold condition, but it didn’t represent a change in trend or in sentiment.

At 0335 GMT, the USD/JPY is trading 110.963, down 0.400 or -0.36%.


Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 110.549 will signal a resumption of the downtrend. The main trend will change to up on a move through 113.710.

The minor trend is also down. Yesterday’s rally helped form a new minor bottom at 110.549.


Daily Retracement Level Technical Analysis

The market is currently trading into a long-term retracement zone at 111.347 to 110.584. The upper or 50% level at 111.347 provided resistance.

Another retracement zone comes in at 111.607 to 112.175.

The short-term range is 113.710 to 110.549. Its retracement zone is 112.130 to 112.502.

Combining the two retracement zones creates a potential resistance cluster at 112.130 to 112.175.

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at 110.963, the direction of the USD/JPY on Thursday is likely to be determined by trader reaction to the 50% level at 111.347.

Bullish Scenario

Overtaking and sustaining a rally over 111.347 will indicate the presence of buyers. This could lead to a quick test of the Fibonacci level at 111.607. Since the main trend is down, sellers could come in on the first test of this level. However, taking out 111.607 could create the upside momentum needed to challenge the resistance cluster at 112.130 to 112.175.

Bearish Scenario

A sustained move under 111.347 will signal the presence of sellers. The first downside target is the main Fibonacci level at 110.584. If aggressive counter-trend buyers are trying to set up a secondary bottom then they’re likely to show up on a test of this level.

If 110.584 fails as support then look for a retest of this week’s low at 110.549, followed closely by the August 21 bottom at 109.770.

The direction of the USD/JPY on Thursday is likely to be controlled by the volatility and direction of the stock market.

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