If you trade USDJPY, then you probably have been watching this descending triangle pattern on the pair’s 4-hour forex time frame. After that bounce from the 101.10 area earlier in the week, price climbed close to the top of the triangle and made a turnaround again.
This could be a sign that market watchers who trade USDJPY could push the pair back down to the bottom of the formation. Price is currently at the 101.50 minor psychological level and could have less than 50 pips to go before reaching the support area.
Forex Trade USDJPY
With consolidation getting tighter and tighter though, the chance for a breakout is looming. Price could bust out of the formation in either direction, depending on the market sentiment and monetary policy differences between the US Federal Reserve and the Bank of Japan.
In her latest speech, Fed Chairperson Janet Yellen reiterated the Fed’s plan to keep interest rates at their low levels until significant signs of a pickup can be seen in the US economy. Meanwhile, the BOJ has been reiterating that the Japanese economy will stay resilient and decided to keep their policy unchanged in their latest rate statement.
It appears that the BOJ is in a more hawkish position compared to the Fed for now, as Kuroda has emphasized that the economy is recovering moderately and that inflationary pressures will keep strengthening. Meanwhile, Yellen has declined to give any clear clues on tightening, even as the US labor sector has printed strong data in the latest NFP release.
If you’re looking to trade USDJPY, price might still bounce off the 101.10 support area for now though if data from Japan later on remains weak. In that case, the next area of resistance for any rallies could be at the 101.50 mark. An upside or downside break could last by as much as 300 pips, which is the same height as the chart pattern.
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