USD/JPY Forex Technical Analysis – Trying to Build Support Base Inside Retracement Zone

The Dollar/Yen is edging lower on Friday, just below a one-month high reached the previous session. Supporting the Forex pair are growing worries that continued monetary tightening at the world’s biggest central banks could trigger a recession.

At 12:40 GMT, the USD/JPY is trading 137.151, down 0.643 or 0.47%. On Thursday, the Invesco Currency Shares Japanese Yen Trust settled at $67.78, down $1.22 or -1.77%.

Bank of Japan’s Divergence from Several Central Banks

The Bank of Japan (BOJ) is ultra-dovish, holding its benchmark interest rate in negative territory, while the other major central banks are still on aggressive tightening missions to squash inflation. This creates a divergence with the major central banks still hiking interest rates. If this continues, the Japanese Yen could weaken from current price levels.

European Central Bank President Christine Lagarde said after the policy board raised interest rates again overnight that “this is not enough,” and that the bank must “continue the battle against inflation at a steady pace.”

A day earlier, the U.S. Federal Reserve also tightened policy, with Chair Jerome Powell adding policymakers expected rates to rise higher and stay elevated for longer.

Also on Thursday, the Bank of England raised its key interest rate as well and indicated more hikes were likely. However, investors bet that the BoE might be getting close to the end of its increases in borrowing costs.

Looking Ahead…

On the data front December’s flash purchasing managers’ index (PMI) figures for services and manufacturing industries will be released on Friday. The data reflects whether economic activity is growing or contracting, and at which pace.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Thursday when buyers took out 137.966. However, there wasn’t much of a follow-through to the upside.

A trade through 134.519 will change the main trend to down.

The main range is 126.362 to 151.945. Its retracement zone is 139.154 to 136.135. The USD/JPY is currently trading inside this area.

The short-term range is 142.254 to 133.635. Its pivot is 137.945.

Daily Swing Chart Technical Forecast

Trader reaction to the short-term pivot at 137.945 is likely to determine the direction of the USD/JPY on Friday.

Bearish Scenario

A sustained move under 137.945 will indicate the presence of sellers. The first downside target is the main Fibonacci level at 136.135. If this fails then look for the selling to possibly extend into a pair of main bottoms at 134.519 and 133.635.

Bullish Scenario

A sustained move over 137.945 will signal the presence of buyers. This could trigger a surge into the main 50% level at 139.154. This is a potential trigger point for an acceleration to the upside.