The dollar/yen finished slightly better in lackluster trading on Friday. Volume was well below average with the U.S. Treasury market closing early and most major banks and institutions on the sidelines ahead of Monday’s U.S. Memorial Day holiday.
The plateau in market gains dampened concerns over Federal Reserve interest rate hikes and data showing a slowing pace of consumer price growth in April.
Friday, the USD/JPY stood at 127.109, up 0.025 or +0.02%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) closed at $73.68, down $0.04 or -0.05%.
In US economic news, the Federal Reserve’s favorite inflation indicator posted a 4.9% year-over-year increase in April. This result matches pre-report estimates and could be a sign that inflation has peaked.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. A trade through 126.362 will signal a resumption of the downtrend. A move through 131.348 will change the main trend to the upside.
The first intermediate range is 121.284 to 131.348. Its 50% level at 126.316 provides support. This is also the trigger point for downward acceleration.
The second intermediate range is 123.471 to 131.348. Its 50% level at 127.410 acts as a resistance.
The short-term range is 131.348 to 126.362. Its pivot at 128.855 is a potential resistance.
The main downside target and potential support is a pair of 50% levels between 123.00 and 122.410.
Short term forecast
Traders’ reaction to the 50% levels at 127.410 and 126.316 will determine the direction of USD/JPY early Monday.
A sustained move above 127.410 will indicate the presence of buyers. If this move is able to generate enough upside momentum, look for a possible short-term push towards the pivot at 128.855.
A sustained move below 126.316 will be a sign of weakness. If the sellers come in strong on this move, expect an acceleration downside with 123.00 to 122.410 a possible target area.
The divergence in monetary policies between the US Federal Reserve and the Bank of Japan still favors the US dollar over the longer term. But in the short term, the dollar/yen is vulnerable to a selloff as US Treasury yields are too stretched.
US Treasury bond sellers were betting on a much more aggressive Fed, but economic data so far suggests policymakers may raise rates at a slower pace from their September 2022 meeting. lower yields, encouraging USD/JPY traders to relax on the long side.
For an overview of all of today’s economic events, check out our economic calendar.
This article was originally published on FX Empire