USD/JPY Forex Technical Analysis – Testing Retracement Zone; Strengthens Over 104.499, Weakens Under 104.135

The Dollar/Yen is extending last week’s gains early Monday as a surge in U.S. yields and hopes for more stimulus to boost the world’s largest economy prompted some investors to temper bearish bets, pulling the Forex pair further away from a multi-month low reached on January 6. The Dollar/Yen hit a one-month high of 104.22 Yen Monday as better rates gave pause to some dollar shorts.

At 05:13 GMT, the USD/JPY is trading 104.215, up 0.248 or +0.24%.

President-elect Joe Biden, who takes office on January 20 with Democrats able to control both houses of Congress, has promised “trillions” in extra pandemic-relief spending. That has pushed the yield on benchmark 10-year U.S. debt up more than 20 basis points to 1.1187% this year, according to Reuters.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 104.751 and 104.761 will reaffirm the uptrend. The main trend will change to down on a move through 102.593.

The minor trend is also up. The minor top at 104.579 is a potential upside target.

The short-term range is 105.677 to 102.593. Its retracement zone at 104.135 to 104.499 is currently being tested. This zone is controlling the near-term direction of the USD/JPY.

The main range is 107.049 to 102.593. Its retracement zone at 104.821 to 105.347 is the primary upside target. This area is controlling the longer-term direction of the Forex pair.

The minor range is 102.593 to 104.220. Its 50% level at 103.407 is potential support. This level will move up as the USD/JPY moves higher.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the USD/JPY on Monday is likely to be determined by trader reaction to the 50% level at 104.135.

Bullish Scenario

A sustained move over 104.135 will indicate the presence of buyers. This could trigger a rally into 104.499, followed by the minor top at 104.579, the pair of main tops at 104.751 and 104.761 and the main retracement zone at 104.821 to 105.347.

Bearish Scenario

A sustained move under 104.135 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into 103.407.

For a look at all of today’s economic events, check out our economic calendar.