USD/JPY Forex Technical Analysis – Buyers Eyeing 20-Year High at 135.130 for Potential Breakout
The Dollar/Yen firmed on Friday, as U.S. consumer inflation accelerated more than expected in May, intensifying the prospects of aggressive policy tightening by the Federal Reserve beyond July.
On Friday, the USD/JPY settled at 134.430, up 0.050 or +0.04%.
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US Inflation Surge Spikes Treasury Yields Higher
A surge in the U.S. consumer price index (CPI) led to a spike in U.S. Treasury yields on Friday, widening the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a more attractive investment.
U.S. Treasury yields jumped Friday, led by short-term rates, after the release of hotter-than-expected inflation data raised concern over a possible recession.
New Bets on Aggressive Fed Rate Hikes
The Fed started raising rates in March and implemented a 50-basis-point hike in May, its largest in 22 years, with the Federal Open Market Committee meeting minutes pointing to further aggressive increases ahead.
Traders have already priced in 50-basis-point rate hikes for June and July, but after Friday’s CPI report failed to confirm inflation was peaking, they are now increasing bets for a September rate hike.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through 134.555 will signal a resumption of the uptrend. Taking out the January 31, 2002 main top at 135.130 will reaffirm the uptrend.
A trade through 126.362 will change the main trend to down. This is highly unlikely, but due to the prolonged move down in terms of price and time, the USD/JPY is in a position to post a potentially bearish closing price reversal top. This won’t change the main trend to down, but if confirmed, it could trigger the start of a minimum 2 to 3 day correction.
The current minor range is 126.362 to 134.555. Its retracement zone at 130.459 to 129.492 is the nearest support zone.
Daily Swing Chart Technical Forecast
Trader reaction to 134.430 is likely to determine the direction of the USD/JPY early Monday.
Bullish Scenario
A sustained move over 134.430 will indicate the presence of buyers. This could create the momentum to trigger an acceleration through 135.130.
Bearish Scenario
A sustained move under 134.430 will signal the presence of sellers. Taking out 133.185 will indicate the selling pressure is getting stronger. If this is able to generate enough downside momentum then look for the start of a near-term acceleration into the retracement zone at 130.459 – 129.492.