March 8, 2022 15:26:35

USD/JPY appears to be forming an ascending triangle, which is a major continuation pattern. Prices should typically break out in line with the dominant longer-term trend that has been in place prior to the pattern forming.

We can see that the major has been in a long-term uptrend since the start of last year. More recently, it has tried to advance north above the November top at 115.52 numerous times. Indeed, prices did make a new high on two separate occasions at 116.33/35, but sellers stepped in and pushed the pair back below this level.

We have drawn a horizontal line along the swing highs at the November resistance and a rising trendline along the swing lows. The greater number of trendline touches tends to produce a more reliable trading indicator. As the price coils in a tighter range, there is an increased likelihood of strong eventual breakout and range expansion.

Breakout expected soon, eyes on US CPI

The daily RSI has recently moved above 50 but the MACD is very slightly in the red, so patience is warranted. An upside breakout will initially target the recent cycle highs at 116.33/35. There is not much resistance above here until the major long-term peak at 118.61/66 from December 2016 and January 2017.

If there is a false breakout, there will be no follow through buying after range trading for a few weeks. That means the breakdown could also be sharp. The 50-day SMA will offer near-term support at 115.04. Trendline support sits at 114.90 ahead of the 100-day SMA at 114.46.

Thursday’s US CPI could be a trigger for some volatility with the headline print expected at 7.9%. USD/JPY upside arguments are based on a hawkish Fed and widening yields between central banks. That said, blockbuster CPI data has seen the dollar retrace after the release on a few occasions in the recent past.