USD/JPY: Sustained Rally Over 116.345 Aims for 118.658

The Dollar/Yen closed sharply higher on Thursday in a somewhat volatile trade after U.S. consumer prices rose higher than forecast in January, leading markets to boost expectations for the Federal Reserve to aggressively fight soaring inflation.

The U.S. consumer price index rose 0.6% from December, the Labor Department said, while in the 12 months through January, CPI jumped 7.5%, the biggest year-on-year gain since February 1982.

On Thursday, the USD/JPY settled at 116.001, up 0.456 or +0.39%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $80.78, down $0.43 or -0.53%.

In other news, the Bank of Japan said it would intervene in markets by offering to buy an unlimited amount of 10-year Japanese government bonds at 0.25%. Buying bonds will lower interest rates at a time when the Fed could raise rates as much as 50-basis points in March. This should help extend the Dollar/Yen rally.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the main top at 116.345 will reaffirm the uptrend. A move through 114.162 will change the main trend to down.

The minor range is 114.162 to 116.339. Its retracement zone at 115.251 – 114.994 is the nearest support area.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY early Friday is likely to be determined by trader reaction to 115.911.

Bullish Scenario

A sustained move over 115.911 will indicate the presence of buyers. If this move creates enough upside momentum then look for a rally through yesterday high at 116.339 and into the main top at 116.345.

Taking out 116.345 will reaffirm the uptrend with 118.658 the next major upside target.

Bearish Scenario

A sustained move under 115.911 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the short-term retracement zone at 115.251 to 114.994. Since the main trend is up, buyers could return on a test of this area.