USD/JPY Price Analysis: Setup remains tilted firmly in favour of bearish traders
|- USD/JPY remains capped near a two-week-old descending trend-line hurdle.
- The formation of a bearish pennant supports prospects for a fresh leg down.
- A sustained move beyond mid-130.00s is needed to negate the bearish outlook.
The USD/JPY pair struggles to capitalize on the previous day's rally of over 135 pips from the 129.20 area and oscillates in a narrow range through the early North American session on Tuesday.
From a technical perspective, a descending trend-line extending from January 18, currently around the 130.50 area, caps the upside for the USD/JPY pair. This, along with another upward-sloping trend line, constitutes the formation of a symmetrical triangle and points to a consolidation phase.
Given the recent sharp decline from over a three-decade high, the aforementioned triangle might now be categorized as a bearish pennant. This, in turn, favours bearish traders and supports prospects for the resumption of the well-established declining trend witnessed over the past three months or so.
That said, it will still be prudent to wait for a convincing break below the triangle support, 129.25 region, before placing fresh bearish bets. The USD/JPY pair might then turn vulnerable to weaken below the 129.00 mark and test intermediate support near the 128.75-128.70 horizontal zone.
The downward trajectory could get extended further towards the 128.00 round-figure mark, below which the USD/JPY pair seems all set to challenge the multi-month low, around the 127.20 zone touched on January 16.
That said, a sustained strength beyond mid-130.00s, or the top end of the symmetrical triangle, will negate the negative outlook and prompt some near-term short-covering rally. The USD/JPY pair might then accelerate the momentum towards the 131.00 mark, en route to the post-BoJ swing high, around the 131.55-131.60 area. Some follow-through buying should pave the way for additional near-term gains.
USD/JPY 4-hour chart
Key levels to watch
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