USDJPY has formed lower highs and found support at the 119.00 major psychological level, creating a descending triangle pattern on its 4-hour forex chart. Price is now testing the triangle support and may be due for a bounce back to the top of the triangle near the 119.50-120.00 area soon.
Stochastic is already indicating oversold conditions, confirming that sellers are exhausted and that a bounce off support might be likely. Once the indicator climbs above the 20.00 level and continues to head north, price might also resume its climb.
USDJPY Forex Forecast
As of now, the short-term moving average is treading below the long-term moving average, which suggests the possibility of a downside break. If that happens, the pair could fall by at least 300 pips, which is the same height as the chart pattern. This could lead to a long-term USDJPY selloff until the 116.00 area.
On the other hand, an upside break could lead to a rally of 300 pips, which might take USDJPY back to its previous highs at 122.00. The upcoming FOMC interest rate statement could be a big catalyst for a move like this, especially if the Fed confirms that they are ready to hike rates sometime this year.
The BOJ interest rate statement later on in the week could also spark strong moves, as BOJ Governor Kuroda has hinted that they are discussing the technical details for an exit strategy. Data from Japan has been weak though and if Kuroda takes the rate statement as a chance to clarify that they are not moving closer to tightening yet, the yen could take a hit and USDJPY could make an upside breakout.
On the other hand, a downbeat FOMC statement could spark more losses for this pair, as a pessimistic outlook could cast doubts on the Fed’s ability to tighten monetary policy this year.
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