USD/JPY Forex Technical Analysis – Sustained Move Over 113.173 Could Trigger Rally Back to 114.124 – 114.287
The Dollar/Yen plunged on Friday as investors reacted to a sharp break in U.S. Treasury yields which tightened the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a less-attractive asset.
The Forex pair reversed recent gains which drove the Dollar/Yen to nearly a 5-year high, amid concerns around a new variant of the coronavirus found in South Africa.
On Friday, the USD/JPY settled at 113.343, down 2.032 or -1.76%
Two schools of thought were at play on Friday. One claimed thin post-holiday volume exaggerated the selling, while another said fear of the unknown over the new variant was the correct response. It may take two weeks to figure out if this variant is vaccine-resistant and this could fuel more uncertainty.
We should know more about how investors feel about the new developments on Monday because the USD/JPY is either going to follow-through to the downside, or recapture some of its losses.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. The trend turned down on Friday when sellers took out the last swing bottom at 113.591. A trade through 113.055 will signal a resumption of the downtrend and a move through 112.728 will reaffirm the downtrend. The main trend will change to up on a trade through 115.519.
The main range is 110.826 to 115.519. On Friday, the USD/JPY tested its retracement zone at 113.173 to 112.619.
The short-term range is 112.728 to 115.519. Its 50% level at 114.124 is the first upside target.
The new minor range is 115.519 to 113.055. It 50% level or pivot comes in at 114.287.
The retracement zone at 113.173 to 112.619 is controlling the near-term direction of the USD/JPY
If traders feel that Friday’s move was exaggerated then they could try to establish support inside 113.173 to 112.619. If successful, this could trigger an acceleration to the upside with 114.124 and 114.287 the primary upside targets.
If traders feel there is more to the variant story with further risks to follow then Sellers should take out the lower end of the zone at 112.619. This could trigger the start of an acceleration to the downside with the October 4 main bottom at 110.826 the next likely target.