USD/JPY – Price Tops Evolving into a Flag Pattern

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USD/JPY - Price Tops Evolving into a Flag Pattern

USD/JPY Stalling after the FOMC-Rally

The USD/JPY rallied after the FOMC meeting last week, continuing an unstoppable uptrend that has brought the pair to 6-year highs. After finding resistance at 109.45 at the end of last week, the pair has been consolidating.

Price top interpretation:
One interpretation of this week’s price action so far is that we have a price top – some kind of head and shoulders, or just a triangle top – refer to the 1H chart below. Price broke below some local lows and support pivots as well as the 50- and 100-hour simple moving averages (SMAs). The 1H RSI fell below 40 showing loss of bullish momentum and fell below 30, showing early bearish momentum.

USD/JPY 1H Chart 9/23
usdjpy 1h chart 9/23

(click to enlarge)

Larger Consolidation Interpretation:
Another interpretation is that while we is that even though its true we have some small price tops, usd-yen is really developing a larger consolidation pattern, perhaps a flag pattern. As price bounces from 108.25, it does look like a flag pattern might be forming.

More Consolidation Scenario: The 109.00 level and the flag pattern resistance line will be important. Failure to break above these resistance factors should keep USD/JPY in consolidation, with downside risk toward the 108.00 handle. Note that the 50-period SMA resides at 108.00 at the moment.

If the consolidation extends even lower, watch for buyers in the 107-107.40 area, a previous consolidation heading into the FOMC meeting. A break below 107.00 might imply that the 109.45 high is here to stay for a while because it would have broken the “base” behind the FOMC-attack.

We should also monitor the 4H RSI. It is bullish and holding above 50. Now, if it falls below 40, USD/JPY would have lost the bullish momentum, and likely to have shifted from a bullish to a medium-term consolidation mode.

USD/JPY 4H Chart 9/23
usdjpy 4h chart 9/23

(click to enlarge)

Bullish Scenario: A break above the flag pattern should open up 109.45, continuing a prevailing uptrend that has upside towards the 110 handle.

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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.