USD/JPY Forex Technical Analysis – Break Under 126.316 Puts 123.000 – 122.410 on Radar

The Dollar/Yen closed lower on Tuesday as investors sought shelter in the safe-haven Japanese Yen amid weakness in the global equity markets. A drop in U.S. Treasury yields and lower-than-expected U.S. economic data also contributed to the Forex pair’s decline.

On Tuesday, the USD/JPY settled at 126.866, down 1.028 or -0.80%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $73.79, up $0.55 or +0.75%.

The NASDAQ Composite fell on Tuesday as fears from Snap’s bleak warning spread to other tech names, while the Dow Jones Industrial Average rallied into the close from its lows of the day.

Meanwhile, the 10-year Treasury yield made a sudden move lower as investors fearing a recession crowded into bonds sending their prices higher. The 10-year Treasury yield slipped as low as about 2.73% on Tuesday after topping 3% earlier this year.

In economic news, the May reading of the S&P Global U.S. Flash Manufacturing PMI came in at 57.5, just above a Dow Jones estimate of 57.4. The S&P Global U.S. Flash Services PMI, meanwhile, registered at 53.5. That was below a consensus forecast of 55.

“Manufacturers and service providers signaled softer upturns in output amid elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth,” S&P Global said in a release.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down on Tuesday when sellers took out the last swing bottom at 126.945.

A trade through 126.362 will signal a resumption of the downtrend early Wednesday. A move through 131.348 will change the main trend to up.

The short-term range is 121.284 to 131.348. Its 50% level at 126.316 is potential support. It’s also the trigger point for the start of an acceleration to the downside.

On the upside, the nearest resistance is a pivot at 127.410, followed by a second pivot at 128.855.

On the downside, the major support is a pair of long-term 50% levels at 123.00 to 122.410.

Daily Swing Chart Technical Forecast

Trader reaction to 126.316 early Wednesday is likely to be determined by trader reaction to the major 50% level at 126.316.

Bearish Scenario

A sustained move under 126.316 will indicate the presence of sellers. Over the short-run, this could trigger a sharp drop into the minor bottom at 125.089. Over the long-run, the primary downside target is a pair of 50% levels at 123.00 to 122.410.

Bullish Scenario

A sustained move over 126.316 will indicate that buyers are coming in to defend against a major breakdown. This could trigger a quick rally into the pivot at 127.410.

Since the main trend is down, sellers could come in on the first test of 127.410. Overcoming it, however, could lead to a surge into 128.855, completing the retracement.