USD/JPY Forecast: At inflection point

USD/JPY bulls better take out the key descending trend line this month, else the odds of a big sell-off in 2018 would significantly improve.

Monthly chart

• The above chart shows the falling top pattern (descending trendline).
• The pair left a lower high in Dec. 2015 and Dec. 2016/Jan. 2017.
• Despite the sharp recovery from Sept. lows, the pair has not been able to cut through the descending trend line.

The odds are low that the pair would be able to take out the trendline hurdle before the year end as the daily chart shows bearish doji reversal, while the 4-hour chart shows a potential head and shoulders reversal pattern.

Daily chart

• The bearish doji reversal indicates the rally from the low of 110.84 has topped out.
• The 100-day MA has offered support, but it could be breached soon as the 10-year treasury yield continues to struggle to rise above 2.4 percent in the convincing manner.

4-hour chart

• The above chart shows a potential head and shoulders pattern with the neckline support at 112.00.
• A close below 112.00 would open doors for 110.55 levels (target as per the measured height method).

View

• The bearish price action on the daily and 4-hour chart indicates the spot is unlikely to take out the descending trendline before the year end.
• A bearish follow-through in Jan. 2018 would open door for a drop to symmetrical triangle support seen on the monthly chart around 109.20.
• A monthly close below 109.20 would indicate the rally from the 2011 low of 75.56 has ended. The spot could then proceed to test Brexit low of 98.99.
• bullish scenario - A bullish break of the descending trendline/bullish symmetrical triangle breakout would signal continuation of the rally from the 2011 low of 75.56 and shall open doors for completion of the inverse head and shoulder, i.e. the spot could target 125.00-126.00 levels (neckline) in 2018.