The Japanese yen has been dominating headlines in the forex market due to its steep depreciation against the US dollar. The USDJPY pair has experienced a meteoric rise since the start of 2021, when it changed hands at 103 to its current trading level at around 157 at the time of writing. This marks a significant 52 per cent depreciation in the Japanese yen against the greenback. Year-to-date, the USDJPY pair is up by 11.50 per cent. Despite the extended bull run in the pair, technical analysis of the price actions shows continued bullish momentum and suggests further upside. In this article, we will highlight key observations that support our bullish outlook on the USDJPY pair.
The most prominent technical observation signalling a bullish outlook for the pair is a breakout from a long-term ascending triangle pattern that formed between October 2022 and April 2024. The bullish continuation pattern can be identified by a horizontal resistance line capping prices below the 151.75 region, along with an upward sloping support line connecting the higher lows in the prices. Generally, the longer it takes for a pattern to develop, the more significant the breakout becomes. The USDJPY pair staged a bullish breakout from the pattern on Apr 10 and subsequently hit an all-time high of 160.2 on Apr 29.
The rapid devaluation of the yen prompted Japan’s Ministry of Finance to intervene in the forex market which led to a sharp yet short-lived retracement of the USDJPY pair to retest the ascending triangle resistance zone at 151.75, which then turned into a support zone, before trending higher to currently hover at around 157. The successful retest of this resistance-turned-support zone adds further validation to the strong bullish uptrend.
Looking at the recent price action, the USDJPY pair is approaching the apex of a symmetrical triangle formed since late April. The symmetrical triangle is identified by a downward sloping resistance line and an upward sloping support line that are converging.
Preceded by an uptrend, this pattern can be seen as a bullish continuation pattern, with further advances expected upon a breakout from the upper resistance line. During the same period, prices also display a healthy uptrend as they find support above the 50-period exponential moving average (50 EMA).
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The formation of a series of bullish continuation patterns on the weekly and daily timeframe shows confluence for further appreciation of the USDJPY pair. Using the measured rule, the symmetrical triangle that’s currently forming could give us a technical target of around 163 in the event of a breakout beyond the 157.5 zone. In the longer term, the upside technical target of 176, signalled by the breakout from the large ascending triangle, remains valid.
The writer is strategist at Phillip Nova
