USD/JPY Forex Technical Analysis – Trend Up; Trading on Strong Side of 109.634 – 109.223 Retracement Zone

The Dollar/Yen is trading higher on Friday as investors continue to bet on a strong U.S. economic recovery while Japan remains under lockdowns in most of the country. Essentially this means the U.S. Federal Reserve is moving closer to raising interest rates while the Bank of Japan and the Japanese government may be considering additional stimulus.

At 09:42 GMT, the USD/JPY is trading 109.884, up 0.047 or +0.04%.

After the U.S. reported solid weekly initial claims and gross domestic product data on Thursday, trader attention now turns to U.S. inflation data due on Friday at 12:30 GMT as investors gauge the extent of a jump in price growth in recent months.

Economists expect core PCE (personal consumption expenditures) prices to jump 2.9% year-on-year in April, compared with a year-on-year rise of 1.8% a month earlier.

The latest fretting about inflation was triggered when data in mid-May showed April U.S. CPI running clip of 4.2%, well above forecasts for 3.6%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend resumed on Thursday when buyers took out the May 13 main top at 109.785. A trade through 108.561 will change the main trend to down.

The short-term range is 110.966 to 107.479. The USD/JPY is now trading on the strong side of its retracement zone at 109.634 to 109.223, making it support.

The main support is the longer-term retracement zone at 108.230 to 107.154. This zone stopped the selling at 107.479 on April 23.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY on Friday is likely to be determined by trader reaction to the short-term Fibonacci level at 109.634.

Bullish Scenario

A sustained move over 109.634 will indicate the presence of buyers. The first upside target is the April 9 minor bottom at 109.961. Taking out this level will be another confirmation of the shift in momentum to the upside.

The daily chart indicates there is plenty of room to the upside with the March 31 main top at 110.966 the next likely target over the near-term. The rally could be slow and steady, but if there is bullish news, prices could accelerate.

Bearish Scenario

A sustained move under 109.634 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the short-term 50% level at 109.223. Since the main trend is up, buyers could come in on a test of this level. If it fails then look for the selling to possibly extend into the main bottom at 108.561.

Side Notes

Continue to monitor the movement in the Treasury yields since their direction is controlling the direction of the USD/JPY.