USD/JPY Forex Technical Analysis – Trade Reaction to 113.975 Will Determine Direction into Close

The Dollar/Yen closed slightly lower on Tuesday in a volatile trade as investors positioned themselves ahead of Wednesday’s major Federal Reserve decisions on tapering and future rate hikes.

The Federal Reserve is expected to approve plans to scale back its $120 billion monthly bond-buying program put in place to help the economy during the coronavirus pandemic, while investors will also be focused on commentary about interest rates and how sustained the recent surge in inflation is.

On Tuesday, the USD/JPY settled at 113.952, down 0.043 or -0.04%.

Ahead of the Fed’s announcements, investors continued to increase their expectations that high and persistent inflation would force the Fed to raise interest rates sooner and faster than policymakers have projected. Contracts in Federal Funds futures now imply three quarter-point rate increases next year, versus two as of late last week, according to data from the CME Group’s FedWatch.

If the Fed commits to three rate hikes, the Dollar/Yen could spike higher with 115.500 a potential upside target.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 114.694 will signal the resumption of the uptrend. A move through 113.256 will change the main trend to down.

The minor range is 114.694 to 113.256. At the close, the USD/JPY was straddling its pivot at 113.975.

The short-term range is 110.826 to 114.694. If the main trend changes to down then 112.760 will become the next target.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY early Wednesday is likely to be determined by trader reaction to 113.975.

Bullish Scenario

A sustained move over 113.975 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into the minor top at 114.443, followed by the October 20 main top at 114.694 and the November 6, 2017 main top at 114.728.

Overcoming 114.728 with strong volume could trigger an acceleration to the upside with 115.501 to 115.615 the next target range.

Bearish Scenario

A sustained move under 113.975 will signal the presence of sellers. If this generates enough downside momentum then look for a break into 113.256.

Taking out 113.256 will change the main trend to down. This could trigger a further break into 112.760. This level is a potential trigger point for an acceleration to the downside.