USD/JPY Set Up for Reversal Top Amid Intervention Fears

The Dollar/Yen is edging lower on Wednesday after climbing to a fresh two-decade peak earlier in the session. The early surge was fueled by more Federal Reserve officials pushing for sizeable interest rate hikes, while the Bank of Japan (BOJ) stepped into the market again to defend its ultra-low rate policy.

The price action after the initial rally, however, suggests technical traders may view the market as overbought, while fundamental traders fear a government intervention.

At 05:35 GMT, the USD/JPY is trading 128.641, down 0.250 or -0.19%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.71, down $1.09 or -1.48%.

Hawkish Fedspeak Underpins Treasury Yields, US Dollar

U.S. Treasury yields pushed higher, and continued their climb in Tokyo trading, with 10-year yields touching 2.981% for the first time since December 2018. The catalysts behind the rise were hawkish comments from Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans.

BOJ Tries Again to Rein in Rise in Yields

The BOJ again offered to buy unlimited amounts of Japanese government bonds on Wednesday to rein in the rise in Japanese 10-year yields, which were butting against its 0.25% tolerance ceiling.

Increasing Worries Over Yen’s Rapid Rise

The monetary policy divergence between the U.S. Federal Reserve and the Bank of Japan has many traders believing the Japanese Yen’s plunge is not justified, even as it raises risks for currency intervention.

Japanese Finance Minister Shunichi Suzuki made the most explicit warning yet on Tuesday, saying the damage to the economy from a weakening currency at present is greater than the benefits from it.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 129.400 will signal a resumption of the uptrend.

A move through 121.284 will change the main trend to down. This is highly unlikely, but due to the prolonged move up in terms of price and time, the USD/JPY is ripe for a potentially bearish closing price reversal top. This won’t change the trend to down, but it will shift momentum to the downside.

The minor trend is also up. A trade through 125.089 will change the minor trend to down. This will also shift momentum.

The first minor range is 125.089 to 129.400. Its pivot at 127.245 is the first downside target and potential support. This is followed by a pair of 50% levels at 126.436 and 125.342.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Wednesday is likely to be determined by trader reaction to 128.891.

Bullish Scenario

A sustained move over 128.891 will indicate the presence of buyers. Taking out the intraday high at 129.400 will indicate the buying is getting stronger and could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under 128.891 will signal the presence of sellers. A trade through the intraday low at 128.066 will indicate the selling pressure is getting stronger. This could trigger a break into the first pivot at 127.245.

Buyers could come in on the first test of 127.245, but if it fails then look for the selling to possibly extend into the pivot at 126.436.

If sellers take out 126.436 then the pivot at 125.342 will become the next target. This is a potential trigger point for an acceleration to the downside.

Side Notes

A close under 128.891 will form a closing price reversal top on the daily chart. If confirmed, this could trigger the start of a minimum 2 to 3 day correction.