USD/JPY Awaiting Range Consolidation Breakout

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USD/JPY Awaiting Range Consolidation Breakout

Consolidation Range: The USD/JPY made a bullish push earlier in the month, rallying from about 116.75 to 120.48. After this bull run, the pair stalled and retreated. It has since been trading above 118.20 and below 119.40.

USD/JPY 4H Chart 2/23
usdjpy 4h chart 2/23
(click to enlarge)

Bullish Bias: The 4h chart shows that despite the dip from 120.48 to 118.20, there is still some bullish bias as price holds above the 200-period SMA. The RSI has been holding above 40 after tagging 70, which reflects maintenance of the prevailing bullish momentum.

Bullish Continuation Scenario: If price clears above 119.45, it would be a bullish breakout that is in the direction of the prevailing trend. That is the preferred direction of breakout because it is most likely going to push towards 120.48, with room above to extend until the 2014-high at 121.70. In this scenario, because USD/JPY has recently broken above a triangle (see daily chart), there would be risk of breaking above 121.70 in continuation of the prevailing uptrend.

Consolidation Scenario: However, price is starting the week retreating from the 119.40 area, but we should monitor the 118.20-50 area for support. A break below 118.20 however would throw a wrench in our bullish continuation outlook. If price starts holding below 118.50 then there might be pressure back towards not only the 116.75 low, but the medium-term consolidation low, which we can see on the daily chart.

USD/JPY Daily Chart 2/23
usdjpy daily chart 2/23
(click to enlarge)

Triangle Consolidation: In the daily chart, we can see that price has been consolidating since December after USD/JPY hit a high on the year at 121.70. The pair formed a descending triangle and appears to have broken above this pattern. However, a break back below 118.20 might invalidate that breakout and put pressure not only down to the 116.75 low, but down to the 115.56 descending triangle low There might be some support at the 116 handle too.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.