- USD/JPY forms an ominous-looking bearish Rising Wedge pattern.
- The price pattern warns of potentially more weakness to come.
USD/JPY keeps rising and forming a Rising Wedge pattern as it closes in on an old major trendline. The wedge is a bearish pattern and suggests the pair is at risk of breaking lower.
The formation of the pattern radically changes the outlook for the pair. Whilst previously USD/JPY was in a short-term uptrend, it is now more likely to decline if certain conditions are met.
USD/JPY 4-hour Chart
Momentum, measured by the Moving Average Convergence Divergence (MACD) indicator, has steadily fallen during the formation of the Rising Wedge at the same time as price has risen. This divergence is a bearish sign and adds the picture of downside risk for the pair.
A decisive break below the lower trendline of the wedge would confirm a breakdown. This move would be expected to fall to 148.40 as a minimum, the 61.8% Fibonacci extrapolation of the height of the wedge at its tallest part. More downside could lead to support laying at 148.27 (October 10 low) or 147.23 (September 2 high).
A decisive break would be one characterized by a longer-than-average red candlestick that cleared the lower line of the wedge and closed near its low or three red candles in a row breaking below the bottom of the wedge.
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