USD/JPY Forex Technical Analysis – Trade Through 126.945 Changes Main Trend to Down

The Dollar/Yen is edging lower on Monday as U.S. Treasury yields hovered for a third session just below its lowest level since April 27. Although the Forex pair is vulnerable to a short-term correction due to the build-up in long dollar positions in recent months, we see the move as a temporary correction.

The main reasons why the dollar has been strengthening against the Japanese Yen haven’t changed significantly so there is still the possibility of a resumption of the rally. Specifically, the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Bank of Japan (BOJ) has made the U.S. Dollar a more attractive asset.

At 09:11 GMT, the USD/JPY is trading 127.554, down 0.387 or -0.30%. On Friday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $73.25, down $0.06 or -0.08%.

Dollar/Yen traders should pay particularly close attention to the 10-year U.S. Treasury note yield. It’s currently sitting within striking distance of its April 27 low at 2.724. Falling below this level could trigger a steep break in the USD/JPY.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through 126.945 will change the main trend to down. A move through 131.348 will signal a resumption of the uptrend.

The minor trend is down. This is controlling the momentum. A trade through 130.813 will change the minor trend to up.

The minor range is 131.348 to 127.026. Its pivot at 129.187 is the nearest resistance.

The USD/JPY is currently straddling another minor pivot at 127.410. The main pivot comes in at 126.316. This is key support and a possible trigger point for an acceleration to the downside.

Daily Swing Chart Technical Forecast

Trader reaction to the pivot at 127.410 is likely to determine the direction of the USD/JPY on Monday.

Bearish Scenario

A sustained move under 127.410 will indicate the presence of sellers. Taking out the main bottom at 126.945 will change the main trend to down. This could lead to a test of the 50% level at 126.316.

A trade through 126.316 will put the USD/JPY in a vulnerable position. Minor targets come in at 125.089 and 123.471. The main targets are a pair of 50% levels at 123.00 and 122.410.

Bullish Scenario

A sustained move over 127.410 will signal the presence of buyers. If this move generate enough near-term momentum then look for a possible test of the pivot at 129.187.