The Dollar/Yen closed lower on Friday after posting a volatile outside trading range. The price action suggests investor indecision. Short-covering due to dampened concerns over safe-haven demand may be providing support, but expectations of a sooner-than-expected rate cut by the Fed is helping to limit gains. We’re looking for heightened volatility as investors will be forced to make a decision due to a change in trading conditions.
On Friday, the USD/JPY settled at 108.203, down 0.088 or -0.08%.
Also on Friday, a U.S. Labor Department report came in well-below expectations, raising the chances of a Fed rate cut in June or July. This tends to be bearish for the U.S. Dollar. However, demand for higher risk assets was strong due to expectations of lower rates and the possible postponement of U.S. tariffs against Mexico that were scheduled to kick in on June 10. These events tend to be bearish for the Japanese Yen.
On Monday, we should see how this plays out. If traders have fully priced in the rate cut and stocks continue to rally then look for the USD/JPY to strengthen.
Daily Technical Analysis
The main trend is down according to the daily swing chart. However, momentum may have shifted to the upside with the formation of a closing price reversal bottom on June 5.
A trade through 107.810 will negate the chart pattern and signal a resumption of the downtrend. The main trend will change to up on a trade through 109.930.
The main range is 105.180 to 112.405. Its retracement zone at 108.735 to 107.940 is controlling the near-term direction of the USD/JPY. On Friday, the Forex pair closed inside this zone.
Daily Technical Forecast
It’s decision time for traders because of the announcement of an immigration deal between the United States and Mexico, thereby, postponing the tariffs.
If this is interpreted as good news then look for a rally on Monday. The first target is an uptrending Gann angle at 108.658. This is followed by a 50% level at 108.735 and a downtrending Gann angle at 109.052.
Sellers could come in on the first test of 109.052, however, this is also the trigger point for an acceleration to the upside with the next targets coming in at 109.865 and 109.930.
If the sellers continue to exert pressure then look for a retest of the Fib level at 107.940. This is followed closely by the main bottom at 107.810.
The selling pressure could get stronger if 107.810 fails with a downtrending Gann angle at 107.427 the next likely target. Crossing to the weak side of this angle will put the USD/JPY in a bearish position. This could trigger a further break into another long-term uptrending Gann angle at 106.919.
The news that the U.S. and Mexico reached a deal over immigration, thereby cancelling or postponing the tariffs scheduled to start on Monday is bullish news. It should be bullish for stocks. It may even drive Treasury yields higher because it may soften the chances of a Fed rate cut in June or July.
Increased demand for equities and firmer Treasury yields should be bullish for the USD/JPY. That’s how I am going to approach the market on Monday. We’ll find out early in the session whether the news is bullish or bearish because the USD/JPY finished inside a retracement zone, bounded by 108.793 and 107.940. I’ll be looking for a breakout through one of these levels.
This article was originally posted on FX Empire