USD/JPY Forex Technical Analysis – Trader Reaction to 106.706 – 106.450 Determines Near-Term Direction

After trading sideways for more than a week, Dollar/Yen traders have finally chosen a direction and it is down. Despite rising risk sentiment, investors are moving in the Japanese Yen, while shedding the safe-haven U.S. Dollar. Some of the selling is related to end of the month repatriation, but most of it is being influenced by an aggressive move by the Bank of Japan (BOJ) early Monday.

At 08:00 GMT, the USD/JPY is trading 107.060, down 0.200 or -0.19%.

The BOJ’s decision to remove limits on its government bond purchases and increase corporate debt buying was widely expected and puts it in line with other major central banks that have unleashed unprecedented amounts of monetary support.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through a pair of main bottoms at 106.930 and 106.921 will signal a resumption of the downtrend. The main trend will change to up on a trade through the last swing top at 109.381.

The USD/JPY has been trading inside a retracement zone at 106.706 to 108.008 for several weeks. This zone is controlling the near-term direction of the Forex pair.

The short-term range is 101.185 to 111.715. Its retracement zone at 106.450 to 105.207 is the next potential downside target and support zone.

Combining the two retracement zones creates a major support cluster at 106.706 to 106.45.

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at 107.060, the direction of the USD/JPY the rest of the session on Tuesday is likely to be determined by trader reaction to 106.706 and 106.450.

Bullish Scenario

Prices could begin to stabilize if buyers can hold the USD/JPY above 106.706. If this is able to generate enough upside momentum then look for a possible near-term rally into 108.008 to 108.083. The latter is a potential trigger point for an upside breakout.

Bearish Scenario

A sustained move under 106.450 will signal the presence of sellers. This could trigger an acceleration to the downside with the next major target coming in at 105.207.