USD/JPY Forex Technical Analysis – Trader Reaction to 106.706 and 108.008 Sets Near-Term Tone

The Dollar/Yen closed slightly lower on Friday as a choppy, two-sided trade in U.S. equity markets held the Forex pair in a tight trading range. Lower 10-year U.S. Treasury yields also weighed on demand for the U.S. Dollar as the spread between U.S. Government bonds and Japanese Government bonds tightened.

On Friday, the USD/JPY settled at 106.874, down 0.105, or -0.10%.

Demand for higher-yielding American assets has been growing. In April, Japan’s money managers bought the most US corporate debt in eight years and the second-highest amount of equities in five years, said the latest Treasury Department data.

The next major move in the Forex pair will come down to risk sentiment. Increasing demand for risk is likely to drive investors into the U.S. Dollar. However, a steep plunge in the global equity markets due to a second wave of COVID-19 infections will likely drive up demand for the safe-haven Japanese Yen.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 106.577 will change the main trend to down. A move through 107.641 will signal a resumption of the uptrend.

The main range is 112.226 to 101.185. Its retracement zone at 106.706 to 108.008 is controlling the longer-term direction of the USD/JPY. The Forex pair has closed inside this zone for nine straight sessions.

Short-Term Outlook

The longer the USD/JPY stays inside the retracement zone and trades in a tight range, the bigger the anticipated breakout. At this time, we’re leaning to the downside since the Forex pair is hugging the lower or 50% level at 106.706.

A steep drop in global equity markets will likely be the catalyst that triggers the break through 106.577. The first level under this level is the main bottom at 105.987. This is a potential trigger point for the start of a break into 101.185.

A breakout over 108.008 could take place if there is another surge in global equity markets. However, this move could only lead to a test of the 109.849 main top.

In our opinion, there is more downside than upside potential, but the actual move will be determined by trader reaction to 106.706 and 108.008.

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Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.