USD/JPY Reversal Top Will Put 118.424 Back on Radar

The Dollar/Yen is trading lower early Friday after touching its highest level since 2015. The price action suggests traders may be booking profits after posting its sixth consecutive higher-top and higher bottom. The last time the Forex pair closed lower was March 17.

The catalyst behind the rally has been the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Bank of Japan.

At 06:32 GMT, the USD/JPY is trading 121.877, down 0.482 or -0.39%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust settled at $76.64, down $0.78 or -1.01%.

“The sharp hawkish repricing of Fed rate hike expectations has mainly benefited the U.S. Dollar against low yielding currencies whose own domestic central banks are expected to lag well behind the Fed in tightening policy,” MUFG currency analyst Lee Hardman wrote in a note to clients.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at 122.437 will signal a resumption of the uptrend.

A trade through 144.651 will change the main trend to down. This is extremely unlikely but due to the prolonged move up in terms of price and time, Friday’s session begins with the USD/JPY inside the window of time for a potentially bearish closing price reversal top.

The main range is 114.651 to 122.437. Its 50% level at 118.424 is the nearest support which puts the Forex pair in a vulnerable position.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Friday will be determined by trader reaction to 122.359.

Bullish Scenario

A sustained move over 122.359 will indicate the presence of buyers. Taking out 122.437 will indicate the buying is getting stronger. If this move creates enough upside momentum then look for a surge into the December 18, 2015 main top at 123.536.

Bearish Scenario

A sustained move under 122.359 will signal the presence of sellers. Crossing to the weak side of the former top at 121.678 will indicate the selling pressure is getting stronger.

If this move generates enough downside momentum then look for a near-term break into the 50% level at 118.424.

Side Notes

A close under 122.359 will form a closing price reversal top. If confirmed, this could trigger the start of a minimum 2 to 3 day correction with 118.424 the next major target.