The USD/JPY started this week with a quick dip to 116.75 before triggering some bids that brought it back to about 117.80.
The 4H chart shows that the dip to 116.75 broke below a descending triangle consolidation that essentially began after the USD/JPY pair retreated from 118.86 on 1/20.
If you have been following USD/JPY in the past 3 years, you would still feel that bullish momentum going even through this couple months of consolidation. However, in the short-term, in the 4H chart, we see bearish bias. Let’s not get the outlook right for the wrong time-frame. In the short-term, the USD/JPY has signaled a bearish outlook by breaking below a support (around 117.20), which has survived 6 stabs at in.
To the downside, the pair has the 115.56 (December low) to 115.85 (Jan, 2015) low. Looking at the 4H chart, 118.00 looks like a key level, around which there should be resistance if the market is indeed bearish in the short-term.
Interestingly the USD/JPY is also in a descending triangle in the daily chart. The bearish outlook in the short-term is limited to 115.56-115.85 (triangle support), because there is a strong prevailing uptrend, and the fundamentals have not shifted. For the bearish outlook, at best this is a consolidation. The mode is essentially bullish-neutral, so look for support in the 115.56-115.85 area.
Now, let’s say price breaks above 118.00. Then, we are back to square one because that would show bulls in this market have strength in the short-term as well. Still a break above 118.86 would be needed to show that the bulls are in control in the short-term, with the 120 area exposed.
Above the triangle resistance and 120, USD/JPY would likely revive the prevailing uptrend seen in the daily chart, or at least test the 121.70, 2014-high.
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