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USD/JPY Forex Technical Analysis – Closing Price Reversal Top Shifted Momentum to the Downside

The Dollar/Yen is inching higher early Thursday on position-squaring ahead of the U.S. Non-Farm Payrolls report, due to be released at 13:30 GMT.

On Wednesday, a pair of bullish U.S. economic reports triggered a massive break in the market, forming a potentially bearish closing price reversal top. The chart pattern doesn’t change the trend to down, but it could lead to a 2 to 3 day correction.

Yesterday’s better-than-expected ADP Private Sector Jobs report for June and ISM U.S. Manufacturing PMI report dampened the U.S. Dollar’s appeal as a safe-haven asset, triggering the dramatic reversal to the downside.

At 06:16 GMT, the USD/JPY is trading 107.469, up 0.013 or +0.01%.

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Traders adjusted their positions based on stale data. July’s reports, to be released in August, could reflect the damage from the surge in COVID-19 cases currently taking place.

U.S. Non-Farm Payrolls are expected to show an increase of 3 million jobs last month. But estimates vary widely and the data comes as concerns grow about whether the U.S. economy can sustain its recovery as coronavirus infections surge and some states reimpose limits on business and personal activity.

A better-than-expected labor market report should drive down demand for the safe-haven U.S. Dollar because investors are likely to increase bets on a faster than expected recovery.

Traders should note that the price action could be limited due to Friday’s U.S. bank holiday. This means we may not see the true reaction to the report until trading resumes next week.

Daily USD/JPY
Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, Wednesday’s closing price reversal top and today’s subsequent confirmation of the chart pattern, indicates that momentum has shifted to the downside.

A trade through 108.163 will negate the closing price reversal top and signal a resumption of the uptrend. A trade through 106.074 will change the main trend to down.

The minor trend is also up. A move through 106.801 will change the minor trend to down. This will confirm the shift in momentum.

On the upside, resistance is the Fibonacci level at 108.008.

On the downside, potential support levels are 107.038, 106.706 and 106.450.

Daily Swing Chart Technical Forecast

The early price action suggests the direction of the USD/JPY on Thursday is likely to be determined by trader reaction to yesterday’s low at 107.364.

Bullish Scenario

A sustained move over 107.364 will signal the return of buyers. This could lead to a rally into 107.749, followed by 108.008 and 108.163.

Bearish Scenario

A sustained move under 107.364 will indicate the selling pressure is getting stronger. This could trigger an acceleration to the downside with the 50% level at 107.038 the first downside target, followed by the minor bottom at 106.801 and another 50% level at 106.706.

This article was originally posted on FX Empire

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