USD/JPY Needs to Hold 125.397 to Sustain Upside Momentum

The Dollar/Yen is edging higher on Wednesday after Bank of Japan Governor Haruhiko Kuroda warned the recent rise in inflation driven by higher import costs could hurt the economy, stressing the central bank’s resolve to keep monetary policy ultra-loose.

At 09:04 GMT, the USD/JPY is trading 126.081, up 0.683 or +0.55%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $74.75, up $0.01 or +0.01%.

Meanwhile, the Japanese Yen weakened past the 126 Yen per Dollar mark for the first time since 2002 as investors flocked to the U.S. currency after some hawkish comments by Federal Reserve officials.

Though U.S. monthly underlying inflation pressures showed some signs of moderation in Tuesday’s data, traders ramped up bets that the U.S. central bank will accelerate its monetary tightening measures this year.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 126.320 will signal a resumption of the uptrend.

A move through 121.284 will change the main trend to down. This is highly unlikely. However, with the USD/JPY up nine days from its last main bottom, today’s session begins with the Forex pair inside the window of time for a closing price reversal top.

The minor trend is also up. A trade through 123.471 will change the minor trend to down. This will shift momentum to the downside.

The nearest support is a pair of 50% levels at 124.896 and 123.802.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Wednesday is likely to be determined by trader reaction to 125.397.

Bullish Scenario

A sustained move over 125.397 will indicate the presence of buyers. Taking out 126.320 will signal a resumption of the uptrend and could trigger an acceleration to the upside since there is no visible resistance until 129.060.

Bearish Scenario

A sustained move under 125.397 will signal the presence of sellers. The first downside target is the pivot at 124.896. A failure to hold this level could drive the USD/JPY into the next pivot at 123.802. This is the last potential support before the 123.471 minor bottom.

Side Notes

A close under 125.397 will form a closing price reversal top. This won’t change the main trend to down, but if confirmed, it could trigger the start of a 2 to 3 day correction.