USD/JPY – Working on Breakout from Descending Wedge Pattern
- 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 Daily chart (Close outside of pattern important)
USD/JPY Weekly chart
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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.