In This Article:
The Dollar/Yen closed lower last week posting a potentially bearish closing price reversal top in the process. A follow-through to the downside will confirm the chart pattern and signal the start of a possible 2 to 3 week correction.
The price action was primarily fueled by a decline in U.S. Treasury yields. Traders seemed to pay little attention to the increased demand for risky assets which drove the S&P 500 and Nasdaq Composite indexes to record high closes. Essentially, higher yields and increased demand for risk will be bullish for the USD/JPY, and lower yields will be bearish for the Forex pair.
Last week, the USD/JPY settled at 111.575, down 0.361 or -0.32%.
Volatility this week could be fueled by the U.S. Federal Reserve’s interest rate and monetary policy decisions on Wednesday. Traders are looking for the Federal Open Market Committee to continue holding borrowing costs steady for the third time this year.
Weekly Technical Analysis
The main trend is down according to the weekly swing chart, however, momentum is trending higher. Last week’s closing price reversal top indicates that momentum may be getting ready to shift to the downside. A trade through 112.405 will negate the closing price reversal top. However, the main trend won’t change to up on the weekly chart until 114.210 is taken out.
The minor trend is down. It turned down last week when sellers took out the previous week’s low at 111.767. This is also a sign of a shift in momentum to the downside. The minor trend will change back to up on a trade through 112.405.
The main range is 114.210 to 105.180. Its retracement zone at 110.706 to 109.641 is support. Holding above this area is helping to generate an upside bias.
The short-term range is 105.180 to 112.405. If the main retracement zone fails as support then look for the selling to extend into the next retracement zone at 110.706 to 109.641.
Weekly Technical Forecast
The direction of U.S. Treasury yields will be the catalyst behind the movement in the USD/JPY this week. Higher yields will make the U.S. Dollar a more attractive asset. Lower yields will drive up demand for the Japanese Yen.
Based on last week’s price action and the close at 111.575, the direction of the USD/JPY this week is likely to be determined by trader reaction to the downtrending Gann angle at 111.210. A trade through this angle will also confirm last week’s closing price reversal top.
Bullish Scenario
A sustained move over 111.210 will indicate the presence of buyers. They will be trying to defend against a confirmation of the closing price reversal top. If the move is able to generate enough upside momentum then look for buyers to take a run at 112.405.