USDJPY: Data-Packed Last 48 Hours of the Week to Lead to a Triangle Breakout

After rocketing 175 pips higher last week, USDJPY has been absolutely anemic this week. After gapping higher to trade at a new 7-month high above 104.12, rates dipped down to fill the gap on Monday and have since oscillated with 35 pips of the 104.00 handle. The recent trading conditions have undoubtedly been lackluster, but USDJPY traders should not lose faith yet; a busy economic calendar and developing technical pattern suggest volatility should return by the end of the week.

Tackling the fundamental side of the ledger first, this week’s US data releases (including weak New Home Sales, stellar Durable Goods Orders, and solid consumer confidence) have hardly led to any excitement in the pair. If anything, the failure to rally on the blockbuster Durable Goods report could be seen a modest negative for the pair, but the busy economic calendar over the last 48 hours of this week’s trade will likely give a stronger signal. From Japan, traders will get a look at Household Spending, Tokyo CPI, Industrial Production, and Retail Sales in Friday’s Asian session, whereas US traders will be treated to Initial Jobless Claims, Preliminary GDP, Pending Home Sales, Core PCE, and Chicago PMI over the next two days.

After the recent run higher in the US Dollar, it may take unanimously strong US economic reports to drive the greenback higher. Meanwhile, Japan’s reports have a relatively low hurdle to clear, given the recent underperformance of the island nation. Therefore, there is risk that the USDJPY could fall heading into the weekend as traders curb their bullish enthusiasm for the US dollar and bearish enthusiasm for the Japanese yen.

Technical View: USDJPY

Looking to the chart, the recent consolidation in USDJPY has formed a clear symmetrical triangle pattern over the last four days. For the uninitiated, this pattern is analogous to a person compressing a coiled spring: as the range continues to contract, energy builds up within the spring. When one of the pressure points is eventually removed, the spring will explode in that direction.

While it’s notoriously difficult to predict the direction of the breakout in advance, indicators like MACD can provide confirmation of a breakout. In this case, a turn back higher in the indicator would show a return of bullish momentum and favor a breakout to the topside, whereas a cross of the key “0” level would increase the likelihood of a breakdown later this week. Either way, more conservative traders may want to consider waiting for the exchange rate to break out (perhaps on some of the data releases highlighted above) and then committing in one direction or another. If we do see a bearish break, sellers may look to target the measured move projection and 20-day MA near 1.0300-20, whereas a bullish breakout could expose psychological resistance at 105.00 as soon as next week.

Source: FOREX.com