The USDJPY pair has been on a gradual downtrend since March this year, with the pair slumping to a multi-month low, around the 102.90 level, last week. Without a doubt U.S. dollar weakness has been the primary driver of the decline in the USDJPY, as the Federal Reserve’s Q4 programme caused traders to turn bearish towards the pair.
The sudden 1,000 point rally in March from 101.17 to 111.70 reminded traders just how volatile the USDJPY pair can be, and that gains in the stock market can translate into a sudden rebound in bullish sentiment towards this risk-sensitive pair.
However, as we have seen recently the stock market is no longer the primary driver of sentiment towards the USDJPY, and the ongoing weakness in the U.S.dollar index has caused traders to sell every meaningful bounce in the USD/JPY pair since late-March.
With the USDJPY now approaching the current 2020 trading low we are likely to see a decisive move one-way or another, with the pair either staging a powerful rebound or a drop into a much lower trading range between the 98.00 and 103.00 levels.
As previously stated, the next major move is likely to be U.S. dollar driven, and we should expect the USD/JPY pair to follow this theme into 2021. This week could be a pivotal moment for the USD/JPY, given the current fundamental factors influencing the down move in the greenback, and a return to risk-off sentiment.
USDJPY Short-term Technical Analysis
The four-hour time frame clearly shows that a downside breakout from a huge triangle pattern is underway. The breakout remains valid while the price trades below the 105.00 resistance level.
This is not an insignificant technical event, and the break is alluding to the fact that the USD/JPY pair could be preparing for an 800 point slump in the short-term while the price trades beneath the 105.00 handle.
Source by ActivTrader.
It must be said that the USDJPY is incredibly technical, and the pair has seen various technical test and retests of the 105.00 and 104.50 resistance zone. If bears are satisfied that we are done with this price zone, then buckle up, because the USDJPY pair could be preparing to perform a major drop as the mentioned triangle pattern unfolds to the downside.
At this stage, the only saving grace would be a sudden reversal, and hold above the 105.00 level. This would likely cause some bear capitulation, and we could probably see a test towards the 105.70 and 106.30 resistance zones.
USDJPY Medium-term Technical Analysis
The daily time frame is incredibly interesting at the moment, as it shows the emergence of a bullish reversal pattern, which if triggered could propel the USDJPY pair significantly higher. The pattern in question is a falling wedge, which is one of the more reliable bullish reversal patterns.
According to technical analysis a meaningful bottom could already be in, at 102.90, although extended support from the falling wedge can also be found around the 102.40 region. These are the current spots where the USDJPY needs to reverse from, or bears are more than likely going to take the pair towards the 100.00 level.
In order for a bullish breakout from the falling wegde pattern to take place bulls need to rally the USDJPY pair above the 104.50 level. This is a key former swing area, and a spot that the pair had difficulty surpassing earlier this month.
In short, the daily time frame is showing that the USDJPY pair has a last ditch attempt to bounce from the 102.00 handle. Watch out for a big reaction in this pair once the 104.50 to 102.40 price range is broken.
Source by ActivTrader.