USDJPY is moving inside a descending triangle pattern on its 4-hour time frame, as price made lower highs and found support at the 116.00 major psychological level. The pair is currently testing the triangle resistance for now and may be due for a move lower, as stochastic is almost in the overbought area.
If selling pressure returns, USDJPY could head back to the bottom the triangle and test support at the 116.00 mark once more. However, sustained buying momentum could lead to an upside break past the triangle resistance around the 118.50 minor psychological level at the moment.
USDJPY Forex Forecast
A break in either direction could last by as much as 500 pips, which is the same height as the chart pattern. An upside break could take price up to the previous highs around 121.00 or higher to 123.00 eventually. On the other hand, a downside break could mean a move until the 111.00 major psychological handle.
There have been no major reports released from both Japan and the US this week, as these currencies traded mostly on risk sentiment and stayed in range. The BOJ interest rate decision proved to be a non-event, as policymakers refrained from taking action. Many expected dovish remarks as the Japanese economy is suffering weaker inflationary pressures.
Next week could have more catalysts for this USDJPY setup, with Japanese CPI and the FOMC statement on tap. The Fed is widely expected to maintain its cautious stance but highlight the consistent improvements in the US economy. Meanwhile, weaker CPI figures are eyed for Japan, thanks to the impact of falling oil prices.
The path of least resistance seems to be to the upside for now, as the US economy is in a better state than Japan. However, risk aversion appears to be favoring the Japanese yen recently since it has more room to rally.
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