USD/JPY Forex Technical Analysis – Consolidating Ahead of Next Week’s Fed Rate Decision

The Dollar/Yen is giving back recent gains as traders continued to gauge the risks of a U.S. recession and the path for Federal Reserve policy.

Futures traders have priced out almost any chance the Fed could move by 50 basis points at its Jan. 31-Feb. 1 policy meeting and have steadily lowered the likely peak for rates to 4.75% to 5.0%, from the current 4.25% to 4.50%.

Additionally, investors have around 50 basis points of U.S. rate cuts priced in for the second half of the year, reflecting softer data on inflation, consumer spending and housing.

At 06:09 GMT, the USD/JPY is trading 130.144, down 0.571 or -0.44%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $71.35, down $0.65 or -0.90%.

Traders Buying Time Before BOJ Turns Less-Dovish in March

The U.S. Dollar has managed over the past two-weeks to consolidate against the Japanese Yen after the Bank of Japan (BOJ) defied market pressure to reverse its ultra-easy bond control policy.

The price action suggests the markets assume the BOJ will stand pat until at least the next meeting in March, though one hurdle will be the expected naming of a new BOJ governor in February.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is edging higher.

A trade through 127.227 will signal a resumption of the downtrend. A move through 134.775 will change the main trend to up.

The minor trend is up according to the swing chart. This is controlling the momentum.

The USD/JPY is currently trapped inside a cluster of 50% retracement levels at 129.403, 130.050 and 131.001.

On the upside, the major target is a long-term Fibonacci level at 136.135. On the downside, the nearest major support is the May 24 main bottom at 126.362.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at 130.050 is likely to determine the direction of the USD/JPY on Tuesday.

Bullish Scenario

A sustained move over 130.050 will indicate the presence of buyers. The first upside target is another pivot at 131.001, followed by a minor high at 131.578. Taking out this level could trigger a surge into another minor top at 132.872. This is the trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 130.050 will signal the presence of sellers. The first target is a pivot at 129.403. This is a potential trigger point for an acceleration to the downside with the main bottom at 127.227 the next target.