USD/JPY Coils Within Key Volume Zone
USD/JPY has faced intense selling pressure over the past month and is now consolidating within a tightening wedge pattern. As the pair approaches a decisive point, we explore the potential scenarios that could unfold in the days ahead.
Why USD/JPY Has Fallen
Over the last month, USD/JPY has plunged more than 9%, driven by a combination of disappointing U.S. economic data and shifting monetary policy expectations. The latest non-farm payrolls report served as a key catalyst, revealing that the U.S. economy added only 114,000 jobs in July, far below the forecasted 175,000. This weak labor market performance, coupled with a rising unemployment rate to 4.3%, has raised concerns about the resilience of the U.S. economy. Additionally, lackluster manufacturing data and underwhelming earnings reports have further eroded confidence in the U.S. Dollar. On the other hand, the Bank of Japan’s unexpected rate hike—its first in 15 years—has bolstered the Yen, adding to the downward pressure on USD/JPY.
Daily Candle Chart: Signs of Consolidation
On the daily candle chart, USD/JPY’s recent price action shows signs of consolidation after its sharp decline. The pair has retraced to the 9-day Exponential Moving Average (EMA), which remains below the 21-day EMA, signalling that dominant momentum remains bearish. However, the drop in volatility is notable, with Thursday and Friday producing the narrowest daily ranges seen in over a week. This tightening range suggests the pair is potentially preparing for a significant directional move.
USD/JPY Daily Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart: Coiling into a Wedge
The hourly candle chart offers a closer look at the ongoing consolidation, revealing a wedge pattern formed by a series of lower swing highs and higher swing lows. This compression in price action indicates that the market is coiling, with energy building for a potential breakout. The top of the wedge pattern aligns closely with the Volume Weighted Average Price (VWAP) anchored to the last trend leg’s peak, acting as a key resistance level. Furthermore, the wedge has formed around the point of control on the volume profile indicator, highlighting this price area as a critical zone of high trading activity and potential market direction.
USD/JPY Hourly Candle Chart
Past performance is not a reliable indicator of future results
Outlook: Awaiting a Breakout
As USD/JPY coils within this wedge, the market is on edge, awaiting a breakout that could set the stage for a sustained directional move. A decisive break above or below the wedge boundaries may signal the next significant trend. Given the recent sharp decline and the key volume area in play, traders may find opportunities by waiting for a break and retest setup. A breakout above the wedge on the hourly chart could lead to a push toward the descending trendline on the daily chart, while a break below the wedge could see a retest of last week’s lows.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Why USD/JPY Has Fallen
Over the last month, USD/JPY has plunged more than 9%, driven by a combination of disappointing U.S. economic data and shifting monetary policy expectations. The latest non-farm payrolls report served as a key catalyst, revealing that the U.S. economy added only 114,000 jobs in July, far below the forecasted 175,000. This weak labor market performance, coupled with a rising unemployment rate to 4.3%, has raised concerns about the resilience of the U.S. economy. Additionally, lackluster manufacturing data and underwhelming earnings reports have further eroded confidence in the U.S. Dollar. On the other hand, the Bank of Japan’s unexpected rate hike—its first in 15 years—has bolstered the Yen, adding to the downward pressure on USD/JPY.
Daily Candle Chart: Signs of Consolidation
On the daily candle chart, USD/JPY’s recent price action shows signs of consolidation after its sharp decline. The pair has retraced to the 9-day Exponential Moving Average (EMA), which remains below the 21-day EMA, signalling that dominant momentum remains bearish. However, the drop in volatility is notable, with Thursday and Friday producing the narrowest daily ranges seen in over a week. This tightening range suggests the pair is potentially preparing for a significant directional move.
USD/JPY Daily Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart: Coiling into a Wedge
The hourly candle chart offers a closer look at the ongoing consolidation, revealing a wedge pattern formed by a series of lower swing highs and higher swing lows. This compression in price action indicates that the market is coiling, with energy building for a potential breakout. The top of the wedge pattern aligns closely with the Volume Weighted Average Price (VWAP) anchored to the last trend leg’s peak, acting as a key resistance level. Furthermore, the wedge has formed around the point of control on the volume profile indicator, highlighting this price area as a critical zone of high trading activity and potential market direction.
USD/JPY Hourly Candle Chart
Past performance is not a reliable indicator of future results
Outlook: Awaiting a Breakout
As USD/JPY coils within this wedge, the market is on edge, awaiting a breakout that could set the stage for a sustained directional move. A decisive break above or below the wedge boundaries may signal the next significant trend. Given the recent sharp decline and the key volume area in play, traders may find opportunities by waiting for a break and retest setup. A breakout above the wedge on the hourly chart could lead to a push toward the descending trendline on the daily chart, while a break below the wedge could see a retest of last week’s lows.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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