Key Talking Points:
- USD/JPY aiming to break above 110.50 before reversal
- Looking for a break below 108.50 if the pattern consolidates
USD/JPY is consolidating above 110.0 this morning despite recent weakness in the US Dollar as the Japanese Yen is struggling to find support as Covid-19 spreads rapidly across Japan. I have been keeping my eye on the pair for a while now as I find the technical setup very appealing, with the final leg of a symmetrical pattern underway, which could see USD/JPY break below 108.50 in the next few weeks.
USD/JPY Daily chart
The first half of the pattern extended over two months, reaching its peak in the first week of July, at which point the reversal started, which is the second part of the pattern. I think it has caught my eye mostly because both the rise and the pullback are following a very similar pattern, with higher highs or lower lows being reached, but not in a continuous form.
The 5 main peak on the first half of the pattern (marked by the black circle) all saw a pullback before a new high was achieved, and in most of the cases the correction went almost as far as the previous low, which allowed for further bullish momentum to gather. We’re also seeing this on the second half od the pattern, where the last three pullbacks (marked by the read circle) all saw a corrective move above 110.50 before being able to extend lower.
We’re now seeing this happen again, and despite the correction higher taking longer to consolidate this time, I’ll be looking for a break above 110.50 in the next few days with a subsequent reversal below 108.70, with a target around the 108.50 area.
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin