USD/JPY Forex Technical Analysis – Strengthens Over 114.380, Weakens Under 114.029

The Dollar/Yen is inching higher early Monday as investors deal with low holiday volume and rising cases of the Omicron coronavirus variant that is dimming risk sentiment. Over the weekend, coronavirus cases rose sharply in Japan and the United States, stoking worries of a slowdown in economic recovery.

The tight trading range suggests financial market activity could be subdued during the last week of the year with many of the major players – banks and financial institutions – on the sidelines.

At 07:38 GMT, the USD/JPY is trading 114.484, up 0.086 or +0.08%. Last Thursday, the Invesco CurrencyShares Japanese Trust ETF (FXY) settled at $81.96, down $0.27 or -0.33%.

In economic news, Bank of Japan policymakers acknowledged rising inflationary pressure in Japan from higher energy and raw materials prices, with their focus on price-setting behavior by companies.

At the December 16-17 policy-setting meeting, the Japanese central bank made no changes to its monetary easing policy. But it decided to scale back COVID-19 funding support for large companies, gradually reducing the purchase of commercial paper and corporate bonds as their funding conditions have been improving.

Traders showed no reaction to the BOJ Summary of Opinions.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through last week’s high at 114.512 will signal a resumption of the uptrend. A move through 113.148 will change the main trend to down.

The short-term range is 115.519 to 112.538. The USD/JPY is currently trading on the strong side of its retracement zone at 114.380 to 114.029, making it support.

The main range is 110.826 to 115.519. Its retracement zone at 113.173 to 112.619 is the major support area. This zone stopped the selling on December 17 at 113.148. This area is also controlling the near-term direction of the USD/JPY.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Monday is likely to be determined by trader reaction to 114.380.

Bullish Scenario

A sustained move over 114.380 will indicate the presence of buyers. If this move creates enough upside momentum, we could see a surge with 115.519 the next target, followed by the January 19, 2017 main top at 115.615.

The daily chart shows there is no resistance until 115.519, but because of the low volume it’s going to take some effort to move this market higher.

Bearish Scenario

A sustained move under 114.380 will signal the presence of sellers. This could trigger a quick break into the short-term 50% level at 114.029.

Since the main trend is up, buyers could come in on the first test of 114.029. If it fails, however, we could see a short-term plunge into a new minor pivot at 113.830.