USD/JPY Forex Technical Analysis – Trader Reaction to 113.173 to 112.619 Sets the Near-Term Tone

The Dollar/Yen is down sharply late Friday as U.S. Treasury yields slid on Friday, reversing recent gains amid concerns around a new variant of the coronavirus found in South Africa. The bearish news fueled a tightening of the interest rate differential between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a less-attractive investment.

At 21:15 GMT, the USD/JPY is trading 113.250, down 2.125 or -1.84%.

The Japanese Yen surged on Friday as investors fled for shelter following the discovery of a new coronavirus variant that could resist current vaccines. The day after the U.S. Thanksgiving holiday is traditionally a low volume day due to the absence of major banks and institutions. This may have been a contributing factor to today’s volatility, which some traders say was a little exaggerated.

Most traders, however, agree that the move into the Japanese Yen, Swiss Franc and U.S. Treasuries was the textbook move due to the uncertainty over the new COVID-variant, which some believe could be vaccine resistant.

Heightened volatility could be the theme for a while since the World Health Organization has said it will take weeks to understand how the variant may affect diagnostic, therapeutics and vaccines.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down early Friday when sellers took out the last swing bottom at 113.591. A trade through the next swing bottom at 112.728 will reaffirm the downtrend. A move through 115.519 will change the main trend to up.

The main range is 110.826 to 115.519. On Friday the USD/JPY tested its retracement zone at 113.173 to 112.619. This zone is controlling the near-term direction of the Forex pair.

We could see a technical bounce on a test of this zone early Monday, but a failure to hold 112.619 could trigger an acceleration to the downside with 110.826 the next major downside target.