USD/JPY Forex Technical Analysis – Price Action Driven by Risk Sentiment Ahead of US Elections

The Dollar/Yen is edging higher early Tuesday as investors braced for Congressional Election Day in the United States that could shift the balance of power in Washington.

The outcome of the elections is likely to have an effect on risk sentiment with a Republican victory leading to an increase in demand for riskier assets, while a Democratic win would be less-pro-business and more likely to lead to higher taxes.

Whomever wins, however, should have no effect on monetary policy since the Federal Reserve is politically neutral.

At 05:15 GMT, the USD/JPY is trading 146.734, up 0.100 or +0.07%. On Monday, the Invesco Currency Shares Japanese Yen Trust ETF (FXY) settled at $63.70, up $0.09 or +0.14%.

On Monday, risk-on sentiment drove investors out of the safe-haven U.S. Dollar, helping to support the Japanese Yen. Risk-takers were speculating the Fed would tighten at a much slower pace due to Friday’s jump in the unemployment rate. Additionally, there was some optimism in the market over unverified reports that China was getting ready to announce an easing in its COVID restrictions.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on October 21. This chart pattern was formed by a massive intervention by the Bank of Japan.

A trade through 145.113 will change the main trend to down. A move through 148.849 will signal a resumption of the uptrend.

The USD/JPY is being supported by a 50% level at 146.149. The nearest resistance is a pivot at 146.981. Additional resistance comes in at 148.529.

Daily Swing Chart Technical Forecast

Trader reaction to the pivot at 146.149 is likely to determine the direction of the USD/JPY on Tuesday.

Bullish Scenario

A sustained move over 146.149 will indicate the presence of buyers. The first upside target is 146.981. Overcoming this level will indicate the buying is getting stronger. This could trigger the start of a strong rally with the next target a resistance zone at 148.529 to 148.849.

Bearish Scenario

A sustained move under 146.149 will signal the presence of sellers. This could trigger a quick break into the minor bottom at 145.682.

Taking out 145.682 will indicate the selling pressure is getting stronger. This could lead to a test of the main bottom at 145.113. This is the trigger point for an acceleration to the downside with 143.913 a possible target.