USD/JPY Forex Technical Analysis –Steep Sell-off Puts Dollar/Yen in Position to Test Four-Month Low

The Dollar/Yen is down sharply on Friday as investors squared positions ahead of the long-holiday weekend. Nonetheless, the Forex pair is still on track to post close to a 14.5% gain for the year.

The strength in the Forex pair was driven by Federal Reserve rate hikes and fears of a sharp slowdown in global growth.

At 18:14 GMT, the USD/JPY is trading 130.977, down $2.040 or -1.53%.

The Bank of Japan’s ultra-dovish stance also helped weaken the Yen with the currency posting its worst performance since 2013.

However, changes could be coming in 2023 after the BOJ’s surprise decision to tweak its bond yield control program pushed the Dollar/Yen to a four-month low earlier in December. Because of the move, traders now expect the BOJ to exit its ultra-dovish policy at some time in 2023.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 130.566 will signal a resumption of the downtrend, while a move through the August 2 main bottom at 130.412 will reaffirm the downtrend. Taking out 138.173 will change the main trend to up.

The minor range is 130.566 to 134.499. Its pivot at 132.533 is the nearest resistance. Another resistance pivot is 134.365.

Daily Swing Chart Technical Forecast

Trader reaction to 131.946 will determine the direction of the USD/JPY into the close on Friday.

Bearish Scenario

A sustained move under 131.946 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into 130.566 to 130.412.

A trade through 130.412 will reaffirm the downtrend and could trigger the start of an acceleration to the downside since the next major target is the May 24 main bottom at 126.362.

Bullish Scenario

A sustained move over 131.946 will signal the presence of buyers. If this generates enough momentum then look for a surge into 132.533. Overtaking this level will indicate the buying is getting stronger.