USD/JPY Testing Key Support at 114.442 – 113.992

The Dollar/Yen is down on Thursday, but up from its lowest level since December 27 as buyers came in following a test of its short-term retracement zone. A rebound in Treasury yields is helping to underpin the Forex pair after it fell sharply the previous session.

At 10:47 GMT, the USD/JPY is trading 114.551, down 0.092 or -0.08%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $81.92, up $0.48 or +0.59%.

Treasury yields fell and the Dollar/Yen weakened on Wednesday as data showing U.S. inflation was within expectations encouraged investors to shed long U.S. Dollar positions.

The December consumer price index (CPI), a key inflation measure, increased 7%, according to the Bureau of Labor Statistics. On a monthly basis, CPI increased 0.5%. Economists expected the CPI to rise 0.4% in December, and 7% on a year-over-year basis, according to Dow Jones.

Excluding food and energy prices, so-called Core CPI increased 5.5% year over year and 0.6% from the previous month. That compared to estimates of 5.4% and 0.5%.

The price action in the USD/JPY suggests the CPI numbers were already priced into the Forex pair. Furthermore, the move also suggests investors have fully-priced the Fed’s highly expected rate hike for March.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower.

A trade through 116.345 will signal a resumption of the uptrend. A move through 113.148 will change the main trend to down.

The minor trend is down. The trend turned down on Wednesday when sellers took out 114.672. The move shifted momentum to the downside.

The main range is 112.538 to 116.345. The USD/JPY is currently testing its retracement zone at 114.442 to 113.992.

The short-term range is 113.148 to 116.345. Its 50% level at 114.747 is potential resistance and a trigger point for an upside breakout.

The minor range is 116.345 to 114.363. Its 50% level at 115.354 is the primary upside target.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Thursday is likely to be determined by trader reaction to 114.442 and 114.747.

Bearish Scenario

A sustained move under 114.442 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to extend into 113.992.

Watch for a technical bounce on the first test of 113.992, but if it fails then look for an acceleration to the downside with 113.148 the next potential target.

Bullish Scenario

A sustained move over 114.747 will signal the presence of buyers. If this creates enough upside momentum then look for a short-term rally into 115.354.

Side Notes

The retracement zone at 114.442 to 113.992 is a very important area. Since the main trend is up, buyers may try to form a potentially bullish secondary higher bottom on a test of this zone.