USD/JPY Forex Technical Analysis – Testing Short-Term Retracement Zone; Strengthens Over 110.452, Weakens Under 109.445

The Dollar/Yen firmed on Friday, posting its second consecutive weekly gain, on optimism about a sooner-than-expected end to the U.S.-China trade dispute. According to reports from CNBC and Bloomberg News, the world’s two largest economies were considering concessions ahead of the high-level trade talks in Washington, scheduled for January 30 and 31.

On Friday, the USD/JPY settled at 109.774, up 0.530 or +0.49%. For the week, the Forex pair was up 1.212, up 1.12%.

Bloomberg News reported on Friday, citing people familiar with the matter, that China has offered to increase U.S. imports for six-years in an effort to erase the U.S. trade deficit with China. The news was positive enough about future economic growth to encourage portfolio managers to sell U.S. Treasurys. This drove up U.S. Treasury yields, which made the U.S. Dollar a more attractive asset. It also drove investors out of the safe-haven Japanese Yen.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum is trending higher. The main trend will change to up on a trade through 113.710. A move through 105.180 will signal a resumption of the downtrend.

The minor trend is up. This is helping to support the upside momentum. The nearest minor bottom is 107.989. A trade through this bottom will change the minor trend to down.

The main range is 113.710 to 105.180. The USD/JPY closed inside this range on Friday. Trader reaction to this zone will determine the near-term direction of the Forex pair.

Daily Swing Chart Technical Forecast

Based on Friday’s close at 109.706, the direction of the USD/JPY on Monday is likely to be determined by trader reaction to the 50% level at 109.445.

Bullish Scenario

A sustained move over 109.445 will indicate the presence of buyers. If this move can create enough upside momentum then look for the rally to possibly extend into the Fibonacci level at 110.452. Since the main trend is down, sellers could come in on the first test of this level. However, overtaking it could drive the USD/JPY into the next minor top at 111.430.

Bearish Scenario

A sustained move under 109.445 will signal the presence of sellers. If this move creates enough downside momentum then look for a potential break into the minor 50% level currently at 108.940. This is followed by the minor bottom at 107.989.