USDJPY showed momentum to the upside, as price broke above the descending triangle resistance on its 4-hour forex chart. The pair could be in for more gains moving forward, as the chart pattern is roughly 300 pips in height.
Stochastic is already indicating overbought condition though, which means that buyers might need to take a break and let sellers take over. In this case, USDJPY could retreat to the broken triangle resistance for a quick retest before resuming its climb.
USDJPY Forex Outlook
A larger correction could last until the triangle support at the 118.50 to 119.00 levels. A move below this area could mean that the breakout was a false one and that USDJPY is in for more declines.
Much could depend on the outcome of the US non-farm payrolls report due on Friday. Recall that the previous release came in weaker than expected, prompting traders to sell the dollar after doubting that the Fed can afford to hike interest rates this year. Another weak jobs reading could lead to more dollar weakness.
As for the Japanese yen, data released last week showed a bit of improvement in price levels, as the national core CPI ticked up from 2.0% to 2.2%. Household spending also marked a smaller than expected decline, leading some to believe that the BOJ might no longer need to increase their stimulus efforts.
The BOJ did mention that they are seeing improvements in the Japanese economy and that policymakers are discussing the technical details of an exit strategy. This seems to be lifting risk appetite though, allowing traders to pursue higher-yielding currencies against the lower-yielding Japanese yen.
With that, the path of least resistance is to the upside, unless the US NFP surprises to the downside. USDJPY could head back up to its previous highs near the 122.00 handle or higher if the jobs data chalk up strong results.
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