USD/JPY Forex Technical Analysis – Strengthens Over 128.855, Weakens Under 127.410

The Dollar/Yen is spiking higher on Tuesday as U.S. Treasury yields rose amid renewed concerns over rising inflation around the world and the possibility of a slowdown in economic growth.

Although a U.S. inflation reading on Friday indicated that pricing pressures could be starting to ease, a jump in Euro Zone inflation data and a surge in crude oil prices, is helping to dampen the optimism.

At 12:55 GMT, the USD/JPY is trading 128.648, up 1.036 or +0.81%. On Friday, the last day it traded, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $73.68, down $0.04 or -0.05%. Based on the early price action, it is expected to open nearly 1% lower.

Renewed Inflation Worries Push Yields, Dollar Higher

Euro Zone data released Tuesday showed prices rising for a seventh straight month, with inflation coming in at 8.1% for May. Oil prices rose broadly Tuesday, adding to concerns of strong inflation slowing down economic growth.

In the U.S., more hawkish talk from a Fed official on Monday dampened the notion the Fed could ease raising rates in September. This was one of the reasons for last week’s rally. With U.S. inflation running more than three times the 2% goal, Fed Governor Christopher Waller yesterday advocated 50 basis-point rate hikes until there was a “substantial” reduction in inflation.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 126.362 will signal a resumption of the downtrend. A move through 131.348 will change the main trend to up.

On the downside, the support is a pair of 50% levels at 127.410 and 126.316.

The short-term range is 131.348 to 126.362. Its 50% level at 128.855 is the first upside target. Since the main trend is down, sellers could come in on the first test of this level. Overcoming it, however, could trigger an acceleration to the upside.

Daily Swing Chart Technical Forecast

Trader reaction to 128.855 is likely to determine the direction of the USD/JPY into the close on Tuesday.

Bullish Scenario

A sustained move over 128.855 will indicate the presence of buyers. If this move generates enough upside momentum then look for a surge into 129.782. Overtaking this level will indicate the buying is getting stronger with the next major targets a minor top at 130.813 and a main top at 131.348.

Bearish Scenario

The inability to overcome 128.855 will signal the presence of sellers. If this create enough downside momentum then look for a pullback into the pivot at 127.410. If this fails to hold then look for the selling to possibly extend into the support cluster at 126.362 to 126.316. The latter is a potential trigger point for an acceleration to the downside.

Side Notes

Watch the price action and read the order flow at 128.855. Aggressive counter-trend buyers are going to overtake this level and trigger an acceleration to the upside, or sellers are going to regain control, forming a secondary lower top that likely leads to a retest of 126.362.