USD/JPY Forex Technical Analysis – Trader Reaction to 132.856 – 131.319 Retracement Zone Sets Near-Term Tone

The Dollar/Yen is edging lower on Monday as U.S. Treasury yields traded flat but near their lowest level since April 5 as investors reacted to fears over a recession.

The Forex pair is extremely sensitive to changes in U.S. long-term Treasury yields, with the benchmark 10-year hovering around 2.67% after sliding to the lowest level since early April at 2.618% at the end of last week.

At 08:02 GMT, the USD/JPY is trading 132.624, down 0.612 or -0.46%. On Friday, the Invesco CurrencyShares Japanese Yen Trust settled at $70.13, up $0.48 or +0.69%.

US Manufacturing PMI on Tap

Today’s U.S. Manufacturing PMI report, due to be released at 14:00 GMT, is expected to show a dip from 53.0 to 52.3. A report that shows activity slowed more than expected in July will serve as another sign that the economy was cooling amid aggressive monetary policy tightening by the Federal Reserve.

A slip to 52.0 will hit the lowest level since May 2020, and would also mark the fifth month in the last six of declining manufacturing activity. This would likely drive yields lower as well as the USD/JPY.

Dire Warning Fed President

Federal Reserve Bank of Minneapolis CEO and President Neel Kashkari said Sunday that the current state of inflation is “very concerning” and “spreading out more broadly across the economy.”

“It’s very concerning. We keep getting inflation readings, new data that comes in as recently as this past week, and we keep getting surprised. It’s higher than we expect,” Kashkari said during an appearance on CBS “Face The Nation.” “And it’s not just a few categories. It’s spreading out more broadly across the economy and that’s why the Federal Reserve is acting with such urgency to get it under control and bring it back down.”

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 131.495 will reaffirm the downtrend. A move through 139.389 will change the main trend to up. This is highly unlikely, but it makes it vulnerable to a closing price reversal bottom.

The intermediate range is 126.362 to 139.389. The USD/JPY is currently testing its retracement zone at 132.856 to 131.319. This zone is controlling the near-term direction of the USD/JPY.

The short-term range is 131.495 to 139.389. Its retracement zone at 134.511 to 135.442 is the nearest resistance.

Daily Swing Chart Technical Forecast

Trader reaction to 133.235 is likely to determine the direction of the USD/JPY on Monday.

Bearish Scenario

A sustained move under 133.235 will indicate the presence of sellers. A trade through the intermediate 50% level at 132.856 will indicate the selling pressure is getting stronger with the main bottom at 131.495 and the intermediate Fibonacci level at 131.319 the next targets.

Taking out 131.319 with heavy selling volume could trigger an acceleration to the downside with 126.362 the next major downside target.

Bullish Scenario

A sustained move over 133.235 will signal the presence of buyers. If this creates enough upside momentum then look for a possible intraday surge into 134.511 to 135.442. Since the main trend is down, sellers could return on a test of this area.

Side Notes

A close over 133.235 will form a potentially bullish closing price reversal bottom. If confirmed, this could trigger the start of a 2 to 3 day counter-trend rally.