Continuation of falling wedge formation for USDJPY

FROM February to March this year, the USDJPY pair has undergone a whipsaw of over 1,000 pips due to extremely uncertain market conditions that came with the Covid-19 pandemic. The pair peaked out at the 111.65 level towards the end of March and started its gradual descent.

An emergence of the falling wedge pattern may be observed from the formation of lower highs and lower lows, with prices currently seen hovering at the top band of the wedge. The pattern is typically known as a reversal pattern which means price tends to move in the opposite direction upon completion. However, various indications are pointing out the possibility of a further downturn before the breakout occurs.

The first indication is the overbought condition revealed by the stochastic oscillator which coincides with the dynamic resistance level (top band of wedge). The stochastic oscillator is a directional indicator as well as a measure of momentum. A reading above 80 signifies an overbought condition while a reading below 20 represents an oversold condition. In this case, the stochastic oscillator seems to work well in identifying points of reversal as shown in the previous occurrence, where price approached the resistance and took a downturn. This further validates the possible move lower.