USDJPY has been trading inside a descending triangle pattern on its 4-hour time frame, with price hovering around the resistance. Stochastic is still pointing up, which means that buying pressure is present and that an upside forex breakout is possible.
If that happens, USDJPY could climb by around 500 pips, which is the same height as the chart pattern. If the resistance holds, the pair could move back to the bottom of the formation at the 116.00 major psychological support.
Forex Breakout Levels
The path of least resistance is to the upside, with the FOMC expressing their bias to tighten policy sometime this year. This has been positive for the US dollar since the Fed seems to be the only major central bank taking a hawkish bias. In contrast, the BOJ has decided to keep policy unchanged but is leaving the door open for further easing if necessary.
Recent data from Japan has been weaker than expected, with spending and inflation figures falling short of forecasts. In addition, the impact of the sales tax hike is still weighing on spending and production, and it doesn’t help that falling wage inflation is making it difficult for consumers to cope with the higher cost of living.
Today’s release of the US preliminary GDP reading could be an event risk for this trade, as strong data could lead to more demand for the US dollar. A 3.0% growth figure is eyed, lower than the 5.0% GDP expansion shown for the previous quarter.
Other than that, there are no catalysts for a forex breakout trade for the rest of the week, but the upcoming trading week has some top-tier reports lined up. This includes the release of the US non-farm payrolls report, which might indicate another strong gain in hiring. If so, USDJPY could surge past the triangle resistance around 118.00-118.50 and rally until the previous year highs around 121.00. On the other hand, bleak figures from the US could force the currency to return its recent gains, with the pair favoring the Japanese yen if risk aversion kicks in.
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