USD/JPY: Bear wedge on chart – is a trend reversal coming? The currency pair USD/JPY has recently formed a bear wedge pattern on its chart, indicating a potential bearish trend. This wedge pattern is characterized by a narrowing of price movements between two converging trend lines, with the upper trend line acting as resistance and the lower trend line acting as support. Many traders see this pattern as a sign of indecision in the market, with neither buyers nor sellers gaining control. However, as the pattern continues to form, it could potentially lead to a breakout in either direction. Some analysts believe that with the current global economic climate and the ongoing trade tensions between the US and Japan, the USD/JPY pair may be heading towards a trend reversal. This could result in a shift towards a bearish trend, with the Japanese yen gaining strength against the US dollar. However, it is important to note that the formation of a bear wedge pattern does not guarantee a trend reversal. Traders should continue to monitor the price movements and wait for a breakout before making any trading decisions. In conclusion, the USD/JPY pair has formed a bear wedge pattern on its chart, indicating a potential trend reversal. Traders should keep a close eye on price movements and be prepared for a breakout in either direction.
Since Christmas, the US dollar has risen from 141 to just over 150 points against the Japanese yen – a not insignificant movement. Who would have thought that at the time? After all, the currency pair was in a larger correction, which even fell below the important 200-day line last year. If this moving average is breached, a sell signal is triggered. This usually announces further price losses. But this time it turned out differently. After a weeks-long struggle between bulls and bears, which even led to a price drop to a new low, the ongoing uptrend began.
As the following price trend from June 2022 shows, the new uptrend started two days after the lower yellow trend channel line was touched. Last week, the currency pair approached an important resistance zone for the third time in the last few years. This can be seen in light red and runs between 150.65 and 151.87 yen per US dollar.
In my opinion, it is unlikely that this zone will be easily crossed. There are two reasons for this: Firstly, the round number at 150 serves as a massive resistance. Round numbers tend to have this effect because many stock traders have placed sell orders there to take profits.
Figure 1: Chart analysis of the US dollar against the Japanese yen from June 2022. The daily chart is displayed.
Source: aktienscreener.com
Bearish ascending wedge with increased probability of correction
Secondly, there is a bearish ascending wedge in the price trend, marked in blue by me. This occurs when an uptrend slowly weakens and the upper blue line has a flatter angle than the lower one. Such chart formations usually break downwards.
Conclusion
In my annual outlook from January 21, 2024, I still saw further potential for the USD/JPY currency pair to rise to 150. At that time, I expected a double top in the long-term chart. In the daily chart, I recommended considering a short position if USD/JPY showed weakness. This is the case when the price drops back below 150 points. Then the steep lower blue uptrend line would be breached and a drop back to the 200-day line at 145 points would be possible.
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