USD/JPY Forex Technical Analysis – Strengthens Over 112.175, Weakens Under 111.607

The Dollar/Yen spiked to the downside on Friday as investors poured into the safe-haven Japanese Yen following another steep sell-off in global equity markets. The selling was also fueled by a report showing weak inflation. The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, missed expectations after it increased 1.6 percent in the third quarter.

The core PCE price index rose at a 2.1 percent pace in the April-June period. Weak inflation data may cause the Fed to pause the pace of its planned interest rate hikes, which would make the U.S. Dollar a less-desirable asset.

On Friday, the USD/JPY settled at 111.895, down 0.501 or -0.45%.

 

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. It was reaffirmed on Friday when sellers took out 111.622. A trade through 111.375 will indicate the selling is getting stronger. The next downside target is the September 7 main bottom at 110.379.

The main trend will change to up if buyers can take out 112.884. However, it’s likely to run into retracement zone resistance.

The current main range is 109.770 to 114.580. On Friday, the USD/JPY straddled its retracement zone at 112.175 to 111.607. Trader reaction to this zone will determine the near-term direction of the Forex pair.

The short-term range is 114.580 to 111.375. Its retracement zone at 112.978 to 113.356 is the primary upside target.

Daily Swing Chart Technical Forecast

Based on Friday’s close at 111.895 and the price action, the direction of the USD/JPY early Monday is likely to be determined by trader reaction to the 50% level at 112.175 and the 61.8% level at 111.607. Holding inside this zone will indicate investor indecision and impending volatility.

Overtaking and sustaining a move over 112.175 will indicate the presence of buyer. If this move can create enough upside momentum then look for buyers to make a run at 112.884 then 112.978. This move is not likely to take place unless the U.S. stock markets mount a huge rally.

The inability to overcome 112.175, will signal the presence of sellers. This could trigger a break into the Fib level at 111.607. The selling pressure will increase on a move through this level.

Taking out 111.607 will indicate the selling is getting stronger with 111.375 the next target. This is a potential trigger point for a steep break. The daily swing chart indicates there isn’t much support under 111.375 with 110.379 the next target.

Remember that the trend is down, but the price action is being controlled by stock market volatility and safe-haven buying of the Japanese Yen. This means the Forex pair can turn in either direction quickly depending on the catalyst driving the price action.