USD/JPY Forex Technical Analysis – Trader Reaction to 111.510 Determines Today’s Direction

The Dollar/Yen is inching lower on Wednesday after testing its highest level since March 2020 earlier in the session. The catalyst behind the move is an easing of Treasury yields.

The price action suggests the presence of sellers or a slowdown in the buying, but not a change in trend. Nonetheless, because of the prolonged move up in terms of price and time, the Forex pair appears to be ripe for a closing price reversal top. If confirmed, this could trigger the start of a 2 to 3 day correction.

At 06:42, the USD/JPY is trading 111.416, down 0.0094 or -0.08%. This is down from an intraday high of 111.683.

“The Japanese Yen is the G10 currency most correlated with U.S. two-year and 10-year Treasury yields,” MUFG currency analyst Lee Hardman said in a note to clients.

The USD/JPY has soared amid a surge in U.S. Treasury yields since the end of last week, after the Federal Reserve said it will likely begin reducing its monthly bond purchases as soon as November and hinted that interest rate hikes may follow more.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out the main top at 111.659. Taking out the March 24, 2020 main top at 111.715 will be further confirmation of the uptrend.

A trade through 109.122 will change the main trend to down. This is highly unlikely, but the steep rally has put the USD/JPY inside the window of time for a closing price reversal top.

The short-term range is 109.122 to 111.683. Its retracement zone at 110.398 to 110.095 is the nearest support zone.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Wednesday is likely to be determined by trader reaction to 111.510.

Bullish Scenario

A sustained move over 111.510 will indicate the presence of buyers. Taking out the March 24, 2020 main top at 111.715 will indicate the buying is getting stronger. This could trigger an acceleration to the upside with the February 20, 2020 main top at 112.226 the next likely upside target.

Bearish Scenario

A sustained move under 111.510 will signal the presence of sellers. This will also put the USD/JPY in a position to form a potentially bearish closing price reversal top. If confirmed, we could see a 2 to 3 day correction with 110.398 to 110.095 the next likely target.