USD/JPY Forex Technical Analysis – Trade Through 106.976 Shifts Momentum to Upside

The Dollar/Yen posted a potentially bullish closing price reversal bottom last week. If confirmed, this could lead to a 2 to 3 week counter-trend rally. A shift in sentiment led to the move. Early in the week, the Forex pair hit its lowest level since March 2018 on worries over a U.S. recession after U.S. Treasury yields inverted. Later in the week, condition calmed after President Trump announced a delay in some tariffs against China, and the U.S. reported better-than-expected Retail Sales data.

Last week, the USD/JPY settled at 106.323, up 0.633 or +0.60%.

Weekly Technical Analysis

The main trend is down according to the weekly swing chart. However, momentum may be shifting to the upside with the formation of the closing price reversal bottom at 105.049.

A trade through 105.049 will negate the closing price reversal bottom and signal a resumption of the downtrend with the March 26, 2018 main bottom at 104.600 the next likely downside target.

A move through 106.976 will confirm the closing price reversal top. This could trigger the start of a 2 to 3 week counter-trend rally. The main trend will change to up at 109.317. Before this, however, traders will have to overtake a short-term retracement zone.

The short-term range is 109.317 to 105.049. Its retracement zone at 107.183 to 107.687 is the next upside target.

The main retracement zone target is 109.664 to 110.859.

Weekly Technical Forecast

Based on last week’s close at 106.323, the direction of the USD/JPY this week is likely to be determined by trader reaction to the downtrending Gann angle at 106.317.

Bearish Scenario

A sustained move under 106.317 will indicate the presence of sellers. If this creates enough downside momentum then look for a possible break into 105.049. Taking out this level should lead to a quick test of the main bottom at 104.600.

Look for a spike to the downside if 104.600 fails. The first target is a downtrending Gann angle at 103.905. Crossing to the downside of this angle will put the USD/JPY in an extremely bearish position.

Bullish Scenario

A sustained move over 106.317 will signal the presence of buyers. Taking out 106.976 will confirm last week’s closing price reversal bottom. This could trigger a surge into the short-term retracement zone at 107.183 to 107.687. Since the main trend is down then look for sellers to come in on a test of this zone.

Overtaking 107.687 will indicate the buying is getting stronger. This could create the momentum needed to challenge a series of downtrending Gann angles at 107.817, 108.155 and 108.567. The latter is the last major resistance angle before the 109.317 main top.

Overview

Treasury yields and demand for risk will control the direction of the USD/JPY. Look for volatility when Fed Chair Powell speaks on Thursday.