USD/JPY at a crossroads: Breakout signals bulls eyeing higher targets
THE USD/JPY has spent much of the last quarter trapped in indecision, but recent price action suggests that the pair may finally be breaking out from months of consolidation.
After trading in increasingly tighter ranges for most of the year, the pair has staged a technical breakout that could set the stage for a larger directional move.
The pair endured a difficult first quarter, peaking at 151.8 on Jan 10 before sliding nearly 12 per cent to 139.9 by Apr 22. That decline was followed by a prolonged period of sideways trading. Between May and June, the USD/JPY oscillated between 142 and 146, and from July onwards, price action narrowed further into a choppy band between 146 and 149.
This lengthy consolidation carved out a large symmetrical triangle pattern that has been developing since the start of the year. The upper resistance line connected the January and July peaks, while the lower support line tied together the troughs in April, July, and September. As at Sep 26, the pair broke above the resistance near 148.8, registering two consecutive full-bodied bullish candles on Sep 24 and Sep 25, a sign of increasing momentum in favour of the bulls.
With this breakout in play, the technical backdrop now tilts to the upside. Price is trading above both the 20-day and 50-day exponential moving averages, while the Relative Strength Index (RSI) remains supported above the 50 level, reinforcing upward momentum. The next key test lies at 150.9. A decisive close above this level would confirm the breakout’s strength and likely open the path to the next upside target at 154.8.
That said, caution is still warranted. Breakouts that initially appear convincing can often falter, especially if broader market sentiment shifts or US dollar momentum stalls. Should the pair fail to hold gains and slip back below the 146 support zone, the next area of demand sits around 143. Such a reversal would suggest that the pair remains stuck within its broader consolidation, despite the recent attempt higher.
For traders, the challenge is to distinguish between genuine breakouts and the false ones. A useful indicator here is the Average Directional Index (ADX), which measures the strength of a trend. Readings above 25 generally indicate trending conditions, while lower values signal that the market remains in chop.
The ADX is currently below 20 at the time of writing, indicating that a new trend has not yet been confirmed. By combining price action with ADX readings, traders can filter out noise and reduce the risk of being caught in a reversal.
After months of sideways action, USD/JPY has finally taken a step out of its technical formation. Whether this early breakout evolves into a sustained bullish trend – or reverts into indecision – will be one of the key developments to watch in the sessions ahead.
The writer is senior strategist, Phillip Nova
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