USD/JPY Forex Technical Analysis – Testing Short-Term Retracement Zone at 109.109 to 108.948

The Dollar/Yen is trading sharply lower on Monday in what can best be described as end of the year position-squaring. We’re probably looking at exporters selling the U.S. Dollar and buying the Japanese Yen for bookkeeping purposes.

I don’t see anything that would suggest safe-haven demand for the Japanese Yen due to the shedding of risky assets. However, investors may be seeking protection ahead of a long holiday week on renewed tensions in the Middle East. On Sunday, the U.S. carried out air strikes on an Iranian backed Shi’ite Muslim militia group in Iraq and Syria.

At 07:24 GMT, the USD/JPY is trading 109.129, down 0.335 or -0.30%.

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 109.787 will signal a resumption of the uptrend. The main trend will change to down on a move through 108.430.

On the upside, the resistance is a major Fibonacci level at 109.371. On the downside, the support is a major Fibonacci level at 108.434.

The short-term range is 108.430 to 109.787. Its retracement zone at 109.109 to 108.948 is the first downside target. Since the main trend is up, buyers could come in on the first test of this zone.

Daily Technical Forecast

Based on the early price action and the current price at 109.129, the direction of the USD/JPY the rest of the session on Monday is likely to be determined by trader reaction to the short-term 50% level at 109.109.

Bullish Scenario

A sustained move over 109.109 will indicate the presence of buyers. If this move is able to create enough upside momentum then look for a rally into the main Fibonacci level at 109.371.

Bearish Scenario

A sustained move under 109.109 will signal the presence of sellers. This could trigger a further decline into the short-term Fibonacci level at 108.948.

Buyers could step in on a test of the 109.109 to 108.948 retracement zone, but if it fails, the USD/JPY could trigger an acceleration to the downside with the next major targets a major 50% level at 108.434 and a main bottom at 108.430.