The USDJPY uptrend may be coming to a halt, as the pair formed a double top pattern on its 1-hour time frame. The pair is currently testing the neckline around the 114.00 major psychological support, with a breakdown likely to confirm that a short-term selloff will take place.
Stochastic is giving the oversold signal though, which suggests that a strong bounce might take place sooner or later. If this happens, USDJPY could make it back to its previous highs near the 115.50 minor psychological resistance. MACD is still heading lower, suggesting that a downside move is possible.
USDJPY Forex Outlook
If USDJPY breaks below the neckline, the pair could fall by an additional 150 pips, which is the same height as the chart pattern. This could lead to a test of the support zone between 113.00-113.50 psychological levels.
Take note though that the neckline of the pattern also lines up with the 100 SMA (simple moving average), which usually acts as a dynamic support area for the pair. A bounce from this region could confirm that the ongoing uptrend is still intact.
There seem to be no major event risks for this USDJPY setup today, as there are no top-tier reports due from both economies. Bear in mind that the US just printed a weaker than expected NFP reading, as the economy added only 214K jobs in October versus the estimated 235K gain. However, underlying data shows that the labor sector continues to see sustained improvements, which should keep the Fed on track to tighten sometime next year.
Later this week, more reports are up for release from Japan and these should indicate if the economy is starting to recover from the sales tax hike. Weak figures could remind traders that the economy might not survive another sales tax hike next year, upping the odds for more BOJ easing and USDJPY rallies.
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