USD/JPY to Resume Uptrend with a Flag Breakout

USD/JPY to Resume Uptrend with a Flag Breakout

The USD/JPY rallied sharply on Friday after the US NFP jobs report which impressed. The 1H chart shows that the pair was consolidating tentatively before the data release. Afterwards, it rallied about 200 pips from about 117.25 to 119.25.

USD/JPY 1H Chart 2/10
usdjpy 1h chart 2/10
(click to enlarge)

Flag Pattern: After stalling just under 119.25, usd-yen retreated and eventually formed a flag pattern as we can see in the chart above.

Remaining Bullish: Note that price held above the 50-hour SMA. This is call a bullish slingshot (when price crosses above a key moving average and then bounces off of it after a pullback.)

The 1H RSI held above 40. The bullish bias and momentum initiated on Friday has been maintained.

Descending Triangle: In the daily chart we can see that the pair has been consolidating since December in a descending triangle. For the most part, the outlook remains bullish but price is being challenged here around 119.50.

USD/JPY Daily Chart 2/10
usdjpy daily chart 2/10
(click to enlarge)

Bullish Continuation:
A break above 119.50 would put price above the 50-day SMA and above the triangle resistance. This would liberate the USD/JPY and expose the 121.70, 2014-high, with risk of breaking even higher in continuation of a bullish trend that started in the beginning of 2012.

At this point, failure to break last week’s high around 119.20 followed by a break below 118.30 could reflect exhaustion and suggest further consolidation. Instead of a bullish continuation scenario, USD/JPY would be back in the neutral mode it has been in since December.

This is a light week in terms of fundamentals for both the US and Japan. We do have preliminary UM Consumer Sentiment on Friday, but I don’t think at this point, the sentiment data will be that important. It does reflect optimism at levels prior to the financial meltdown in 2007, so maybe if the USD/JPY does not break higher by Friday, a reading in-line with estimates or higher could give it a boost to break that triangle resistance.

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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