USD/JPY Forex Technical Analysis – Nearest Upside Target is 105.526; First Downside Target is 104.601

The Dollar/Yen is trading higher on Wednesday, supported by positive U.S. economic data and concerns about a second wave of coronavirus infections in Europe and Britain. Safe-haven buying is likely to continue to grind higher in the short-term as the coronavirus rattles sentiment in Europe, but uncertainty about this year’s U.S. presidential election means the Forex pair could be prone to more volatile price swings.

At 06:40 GMT, the USD/JPY is trading 105.126, up 0.173 or +0.16%.

On Tuesday, the greenback was bolstered by data showing U.S. home sales surged to their highest level in nearly 14 years in August, but comments from a prominent Federal Reserve official sent mixed signals.

The U.S. economy risks a longer, slower recovery and “recessionary dynamics” if Congress fails to pass an additional fiscal stimulus package, Chicago Federal Reserve President Charles Evans said.

Evans also shook up the financial markets when he said it is possible for the Fed to raise interest rates before inflation starts to average 2%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum is trending higher with the formation of the closing price reversal bottom on Monday and its subsequent confirmation yesterday.

The confirmation of the closing price reversal bottom doesn’t change the main trend to up, but it could lead to a 2 to 3 rally or a 50% to 61.8% correction of the last sell-off.

A trade through 104.002 will negate the closing price reversal bottom and signal a resumption of the downtrend. The main trend will change to up on a trade through 107.049.

The minor trend is also down. The minor trend will change to up on a trade through the last minor top at 106.550.

The short-term range is 107.049 to 104.002. Its retracement zone at 105.526 to 105.885 is the primary upside target. Since the main trend is down, sellers are likely to come in on a test of this retracement zone.

Daily Swing Chart Technical Forecast

The current short-covering rally is being driven by the headlines and the closing price reversal bottom chart pattern.

Bullish Scenario

If the upside momentum continues then look for the short-covering rally to possibly extend into the short-term retracement zone at 105.526 to 105.885. Since the main trend is down, look for short-sellers to return on the initial test of this area.

Bearish Scenario

The inability to follow-through to the upside after the earlier gains could be a sign of new selling pressure, or that the short-covering is ending.

The new minor range is 104.002 to 105.199. If there is a correction, then its 50% level at 104.601 will become the first downside target. If this fails then look for a retest of the main bottom at 104.002.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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