USD/JPY Forex Technical Analysis – Vulnerable to Steep Drop Under 104.600

The Dollar/Yen plunged on Friday on heavy flight-to safety buying in reaction to a drop in U.S. Treasury yields and a nosedive in demand for risky assets. Some of the reaction was caused by the dovish tone of a key speech by Federal Reserve Chairman Jerome Powell at the Jackson Hole, Wyoming central bankers’ seminar on Friday morning. Most of the move was triggered by President Trump’s ordering of U.S. companies to leave China, which investors feel may have driven the U.S. economy closer to recession.

On Friday, the USD/JPY settled at 105.420, down 1.018 or -0.96%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. Taking out 105.049 will reaffirm the downtrend. This could lead to a test of the March 26, 2018 main bottom at 104.600.

The main trend will change to up on a move through 109.317. This is highly unlikely at this time given the bearish narrative.

The minor trend is also down. A trade through 107.086 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 107.086 to 105.049. Its 50% level or pivot at 106.013 is resistance. Overcoming this level on Monday will suggest the return of buyers and that Friday’s sell-off may have been overdone.

The main range is 109.317 to 105.049. If the minor trend changes to up then its retracement zone at 107.183 to 107.687 will become the primary upside target.

Daily Swing Chart Technical Forecast

Based on Friday’s price action and the close at 105.420, the direction of the USD/JPY on Monday is likely to be determined by trader reaction to the pivot at 106.013.

Bearish Scenario

A sustained move under 106.013 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the minor bottom at 105.049.

Taking out 105.049 will indicate the selling pressure is getting stronger. This should lead to a test of the March 26, 2018 main bottom at 104.600. This bottom is very important because it’s the last support before the 101.179 main bottom from November 9, 2016. Needless to say, it could be the trigger point for an acceleration to the downside.

Bullish Scenario

A sustained move over 106.013 will signal the presence of buyers. This recovery from Friday’s sell-off will signal the presence of buyers. If this generates enough upside momentum then look for the rally to possibly extend into the high at 106.976, the minor top at 107.086 and the main 50% level at 107.183.