USDJPY Analysis- July 7
USDJPY makes signs of trend change from an upward direction in the market. On the daily timeframe, the market keeps rallying and forming higher highs and higher lows. Until March 4, 2022, the market had been consolidating in a tight rectangular pattern, only to break out in the same upward direction as before the consolidation.
USDJPY Major Levels
Resistance levels: 137.050, 147.630
Support levels: 131.350, 125.130
USDJPY Long-term Trend: Bearish
Currently, it appears that the bulls are offloading their long positions in favour of the bears. This might either lead the market into a correction phase or a new trend change from the current upward direction. As indicated by the Simple Moving Average (SMA), the current upward trend began after the consolidation period ended on March 4, 2022. Price rallied from here to the previous resistance level at 125.130, only to break through and face a higher resistance level of 131.350. The previous resistance level at 131.50 pushed the USDJPY market into a demand zone, resulting in a rapid rally and a fair value gap that must be filled later.
The previous resistance level at 131.350 has now become an important support level as the market was unable to break it on June 16, 2022. From the support level of 131.350, the price rose to an important resistance level of 137.050 to form higher highs. This contradicts the lower highs formed by the Relative Strength Index (RSI)—thereby indicating that the market is about to form lower highs which will result in a change in the current upward direction. The RSI also confirms this as it shows that the market is just recuperating from an overbought region.
USDJPY Short-term Trend: Bearish
On the four-hour timeframe, a head and shoulders pattern can be seen bouncing off the Bollinger upper band indicator near the resistance level of 137.050. This head and shoulders pattern indicates that the current market trend in the upward direction is about to end, which will be confirmed by a true breakout from the pattern’s neckline and a downward expansion of the Bollinger Bands. An impulsive breakout across the neckline of the head and shoulders pattern is expected to send the market into a downtrend, potentially breaking the 131.50 support level and completely changing the current upward direction to a downtrend.
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