The USDJPY pair forms a contracting triangle as a reversal pattern that typically appears at the end of long trends. In this case, the bearish trend seen for the last four years seems to be challenged. Moreover, a double bottom formation ahead of the U.S. elections further fuels bullish scenarios.
The pair decoupled from the stock market for quite some time now. It used to be one of the currency pairs that traded hand in hand with the stock market when the Bank of Japan was one of the few central banks that kept the interest rates negative or close to zero. That is no longer the case.
Nowadays, all G10 countries in the developed world have negative interest rates or keep them close to the lower boundary. As such, the dynamics in the currency pair changed.
USD Bears Profit-Taking Ahead of the U.S. Elections
The USD took a beating ever since the Fed reacted to the coronavirus crisis. This week’s hearing revealed the Fed’s Powell stating that the Fed did literally all it could so far.
If the market perceives that the Fed is left out of ammo, the USD reversal may take a nasty form. That is especially true of the bears decide to further take profits now that reversal patterns formed on most dollar pairs. Ahead of the U.S. elections, profit-taking makes sense for the conservative trader.
USDJPY Technical Analysis
The triangle below did not end yet. The price needs to break the b-d trendline, and that is where the bulls focus lies. A break there would open the gates for a much higher move considering that such a triangle’s measured move equals its longest segment.
Therefore, bulls would want to wait until the USDJPY pair breaks above 106 and before going long with a stop at 104.50 and targeting a move well-above the 110 level.
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