USD/JPY Forex Technical Analysis – In Position to Challenge One-Year High at 114.728

The Dollar/Yen closed higher for a second week. The Forex pair was driven higher by the outcome of the U.S. mid-term elections and another hawkish monetary policy statement from the U.S. Federal Reserve.

Although the outcome of the mid-term elections resulted in a split Congress. Stock market investors celebrated the news because it was exactly what was predicted. The increased demand for higher risk assets helped drive the Japanese Yen lower because of the carry trade. It also dampened the Yen’s appeal as a safe-haven asset because of the absence of heightened volatility in the global equity markets.

The monetary policy statement from the U.S. Federal Reserve continued to highlight the divergence in the monetary policies of the hawkish Fed and the dovish Bank of Japan. Furthermore, rising U.S. interest rates continued to widen the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive currency.

For the week, the USD/JPY settled at 113.811, up 0.611 or +0.54%.

Weekly Swing Chart Technical Analysis

The main trend is up according to the weekly swing chart. A trade through 114.580 will signal a resumption of the uptrend. A move through 114.728 will reaffirm the uptrend. This is a potential trigger point for an acceleration to the upside since the next major target is the main top at 118.658.

The main trend will change to down on a trade through 111.375.

The main range is 118.658 to 104.600. Its retracement zone at 113.288 to 111.629 is controlling the near-term direction of the USD/JPY.

The short-term range is 104.600 to 114.580. If the trend changes to down then its retracement zone at 109.590 to 108.412 will become the primary downside target.

Weekly Swing Chart Technical Forecast

Based on last week’s price action, the direction of the USD/JPY this week is likely to be determined by trader reaction to the main Fibonacci level at 113.288.

A sustained move over 113.288 will indicate the presence of buyers. Crossing to the bullish side of the main retracement zone will also help maintain the upside bias.

If the move generates enough upside momentum then look for buyers to make a run at 114.580 then 114.728. Taking out 114.728 with conviction will be bullish. If volume increases on the move then look for an acceleration to the upside with the next potential target 118.658.

A sustained move under 113.288 will signal the presence of sellers. If this move generates enough downside momentum then look for a potential break into the main 50% level at 111.629. Crossing to the weak side of this level will indicate the selling is getting stronger.

Taking out the main bottom at 111.375 will change the main trend to down, setting up the USD/JPY for an extended break with downside targets coming in at 109.770 and 109.590.

Basically, taking out 114.278 will indicate the buying is getting stronger and falling back below 113.288 will indicate the buying is getting weaker or the selling is getting stronger.