Talking Points:

  • USD/JPY’s downtrend clearly endures
  • However, there are signs that an attempt at base building could be under way
  • Trade in the immediate aftermath of this week’s Federal Reserve policy call could be very illuminating

Where does the Japanese Yen stand in the affections of retail foreign-exchange traders. Find out at the DailyFX Sentiment Page.

The Japanese Yen remains clearly in the ascendant against the US Dollar but there are tentative signs that the breaks are being put on.

Fundamentally an environment of general Dollar weakness is being challenged by rising US bond yields. The growing realization that, while many developed-market central banks will probably tighten monetary policy as their next move, the Federal Reserve remains the most aggressive player on this field by far also seems to be spreading.

For USD/JPY this has not yet meant any break in the steep downtrend channel on the daily chart which has endured since January 8. And it is worth noting at this point that that downtrend was only an acceleration of the more meandering slide already in place since November 6.

Japanese Yen Technical Analysis: USD/JPY Fall Halts Above Key Low

The downtrend has paused this week, in the 108.80 area, which is just above the support area formed by the intraday and closing lows of the last very significant low which was made on September 7. Now of course while the downtrend channel endures, a test of those lows is inevitable. And USD/JPY bears could merely be taking some time out until they’ve heard from the US Federal Reserve. Chair Janet Yellen will give her last monetary decision at the helm later on Wednesday and, while no alterations are expected, she is tipped to leave the door wide open to a March interest-rate rise.

Once that is out of the way, whether USD/JPY can indeed build any sort of base around current levels will be the week’s pressing question. If it can, then US Dollar bulls can dare to dream of a way out of the prevailing downtrend, although for the moment that looks like a very big ask.

Japanese Yen Technical Analysis: USD/JPY Fall Halts Above Key Low

If base building fails, then those September lows in the 107 area will be back in focus.

Meanwhile the Australian Dollar is looking a little heavy against the Yen now. The Aussie has enjoyed a stellar run against the US Dollar for the last couple of months, with its steep gains inevitably leading to strength elsewhere, and notably against the Yen. However, AUD/JPY has twice failed to top the 89.08 level this month, despite two valiant bullish attempts on it.

This must now be regarded as a double top cap for the cross, which in turn puts focus on the current range base at 87.17.

Japanese Yen Technical Analysis: USD/JPY Fall Halts Above Key Low

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX