Bullish Triangle or Double Top for USD/JPY?

US Dollar, Japanese Yen, USD/JPY – Price Action:

• USD/JPY’s broader trend remains down.
• Key focus is on Japan inflation data due on Friday
• Given that the BOJ is comfortable with the current policy settings, which way is USD/JPY headed?

The Japanese yen is at an important crossroads against the US dollar ahead of the release of key Japan inflation data.

Japan inflation is due to be released on Friday – core inflation for March is expected to have softened to 3.2% on-year from 3.3% in February, according to Bloomberg, albeit still away from BOJ’s 2% target. Ahead of the data, USD/JPY appears to be well bid after Japan’s new central bank governor Kazuo Ueda, at his inaugural press conference last week, stressed they are in no rush to alter the ultra-accommodative policy settings, including yield curve control.

USD/JPY 240-minute Chart

Chart Created by Manish Jaradi Using TradingView

Ueda said big changes to YCC should be decided by looking at economic, price, and financial trends. At the same time, he said the BOJ should avoid being too late in normalizing monetary policy, and leave the door open for some adjustments sooner rather than later. For now, though, the new governor’s dovish tone is likely to provide some support for USD/JPY in the near term, especially amid rising expectations of one more US Fed rate hike at the May meeting. For more discussion on this see “Gold Weekly Forecast: Is it Time to Turn Cautious on XAU/USD?”, published April 16.

USD/JPY Daily Chart

Chart Created Using TradingView

Meanwhile, technical charts suggest the broader picture for USD/JPY remains bearish.As highlighted in recent updates, USD/JPY trend on the daily charts is down. See color-coded candlestick charts based on trend/momentum indicators.

USD/JPY Daily Chart

Chart Created by Manish Jaradi Using TradingView

Most recently, though, USD/JPY has been stuck in a narrow range, with two potential price patterns unfolding on the 240-minute charts. One appears to be an ascending (bullish) triangle forming since late March. The other one seems to be a minor double top (the April 12 and April 17 highs). While not a done deal yet – the price action is still unfolding – the implications for the subsequent trend could differ.

A decisive break above a horizontal trendline from early April at about 134.00 would trigger the bullish ascending triangle, with a potential price objective of around 137.00-138.00. On the other hand, a failure to rise above the horizontal trendline at 134.00 would raise the risk of a drop toward the last week’s low of 132.00. Any fall below 132.00 would trigger the bearish double-top pattern, exposing downside risks toward 130.00.

USD/JPY Weekly Chart

Chart Created by Manish Jaradi Using TradingView

Zooming out on the daily and the weekly charts, USD/JPY has quite strong converged support at the January low of 127.20, coinciding with the lower edge of the Ichimoku cloud on the weekly charts and the May 2022 low of 126.35. On the upside, above 134.00, there is a tough ceiling at the March high of 137.90, roughly coinciding with a stronger barrier on the 200-DMA (now at about 137.10).

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish