USD/JPY: Potential Bearish Reversal from Broadening Formation
The USD/JPY is showing signs of a possible Broadening Formation (BF), a price pattern that may indicate a bearish reversal. This formation has developed over the last three weeks, characterized by higher highs and lower lows in price, a pattern often observed during high market volatility, as seen with recent US election-related uncertainty.
Key Features of the Broadening Formation
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Pattern Characteristics:
- BFs usually occur when prices oscillate within an expanding range, creating higher highs and lower lows.
- The USD/JPY has recently overshot the upper boundary, a move that could signal a potential exhaustion of upward momentum and an impending decline.
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Bearish Reversal Potential:
- If the BF holds, USD/JPY might reverse back toward the lower boundary line around 151.30.
- A decline below the November 6 high of 154.60 would be a strong bearish signal, suggesting further downside.
- The MACD momentum indicator is also crucial; a blue MACD line crossing below the red signal line would reinforce the bearish outlook.
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Target for Decline:
- If the price breaks below the lower boundary line, USD/JPY could decline to a level equal to the broadest width of the BF extrapolated lower. This could mean a significant drop from current levels.
Alternative Scenario: Continued Uptrend
If this broadening formation does not confirm, USD/JPY may remain in a strong short- and medium-term uptrend. In that case:
- The “trend is your friend” principle would favor continued bullish momentum.
- A break above 156.25 could open the way for further gains towards the 157.86 mark, a critical level last reached on July 19.
Summary:
For now, USD/JPY faces a critical juncture with potential for a bearish reversal, particularly if price breaks below 154.60 and MACD turns bearish. However, if the pair remains strong above these levels, it could continue upward, with key resistance at 156.25.