USD/JPY – Stalking a Pullback after a Breakout

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USD/JPY - Stalking a Pullback after a Breakout

The USD/JPY started this week with a quick dip to 116.75 before triggering some bids that brought it back to about 117.80.

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

The 4H chart shows that the dip to 116.75 broke below a descending triangle consolidation that essentially began after the USD/JPY pair retreated from 118.86 on 1/20.

If you have been following USD/JPY in the past 3 years, you would still feel that bullish momentum going even through this couple months of consolidation. However, in the short-term, in the 4H chart, we see bearish bias. Let’s not get the outlook right for the wrong time-frame. In the short-term, the USD/JPY has signaled a bearish outlook by breaking below a support (around 117.20), which has survived 6 stabs at in.

To the downside, the pair has the 115.56 (December low) to 115.85 (Jan, 2015) low. Looking at the 4H chart, 118.00 looks like a key level, around which there should be resistance if the market is indeed bearish in the short-term.

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

Interestingly the USD/JPY is also in a descending triangle in the daily chart. The bearish outlook in the short-term is limited to 115.56-115.85 (triangle support), because there is a strong prevailing uptrend, and the fundamentals have not shifted. For the bearish outlook, at best this is a consolidation. The mode is essentially bullish-neutral, so look for support in the 115.56-115.85 area. 

Now, let’s say price breaks above 118.00. Then, we are back to square one because that would show bulls in this market have strength in the short-term as well. Still a break above 118.86 would be needed to show that the bulls are in control in the short-term, with the 120 area exposed.

Above the triangle resistance and 120, USD/JPY would likely revive the prevailing uptrend seen in the daily chart, or at least test the 121.70, 2014-high.

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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.