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USD/JPY – Working on Breakout from Descending Wedge Pattern

USD/JPY – Working on Breakout from Descending Wedge Pattern

Paul Robinson, Strategist

USD/JPY Highlights:

  • USD/JPY descending wedge pattern triggering
  • Daily close outside of it will be added confirmation

USD/JPY descending wedge pattern triggering

The range in USD/JPY had tightened significantly in the past month following the march spike-and-reverse. The calm in volatility led to a descending wedge pattern. These patterns given the lower highs suggest sellers are coming at more aggressive levels, hence giving the formation a downward bias.

At the moment we are seeing a breakout that could finally kick off a meaningful price swing. First want to see a 4-hr candle close below support at 106.92, but ultimately today’s close will be more important. A reversal back inside the pattern will tap on the brakes to the downside break, and if price were to then trade outside the top of the pattern it could trigger a rally as the bottom-side break proves false.

On a continued breakdown, the size of the pattern suggests a ~250 point move at a minimum, which points to around the mid-104s. But looking at the longer-term chart, we can see that there is a longer-term narrowing in range that has a floor closer to 102, thus leaving room for a larger decline than what the pattern initially suggests.

In any event, the narrowed range points to a breakout in price. For now, as long as the pattern is confirmed with closing breaks, then I’ll run with a bearish bias. If the break begins to prove false, then a flat to bullish alternate path will have to be considered.

USD/JPY 4-hr chart (Descending wedge)

USD/JPY

USD/JPY Chart by TradingView

USD/JPY Daily chart (Close outside of pattern important)

USD/JPY daily chart

USD/JPY Chart by TradingView

USD/JPY Weekly chart

USD/JPY weekly chart

USD/JPY Chart by TradingView

***Updates will be provided on the above thoughts and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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