USD/JPY may be heading for a major breakout soon
USD/JPY is compressing below resistance around 162.5 after a series of higher lows since 3 July. A breakout could point towards 164-165, while a failure to hold the 20-day moving average could shift momentum back in the yen's favour.
Founder, Mott Capital Management
USD/JPY compresses below resistance
USD/JPY appears to be gearing up for a significant move. The currency pair has established firm resistance around 162.5 and has recorded a series of higher lows since 3 July.
That leaves the pair compressing into an increasingly tight range, forming either a symmetrical triangle or an ascending triangle. Both patterns are often treated as continuation patterns, suggesting that USD/JPY could break out and move significantly higher if resistance gives way. A failure, however, could send the pair back towards 160, and potentially lower.
Momentum signals are mixed but improving
Longer-term upward momentum appears to be strengthening, with the relative strength index forming a series of higher lows since the end of January. In the shorter term, however, USD/JPY has remained below resistance for several weeks, while its RSI has begun to trend lower.
That makes the current compression important. The longer-term momentum backdrop still points higher, but the pair needs to resolve the short-term stall before the bullish setup can be confirmed.
USD/JPY daily chart
USD/JPY, daily. Sources: TradingView, Michael J Kramer.
The 20-day moving average remains the key support
The 20-day moving average has provided firm support, and the pair has remained above that level since mid-May. That makes it an important dividing line for the near-term technical picture.
As long as USD/JPY holds above the 20-day moving average, there remains scope for the pair to break above resistance and move towards the upper Bollinger Band around 163. A break below the 20-day moving average would be a clear negative signal, potentially indicating that momentum has shifted in favour of the Japanese yen.
A break above 162.5 could open the way towards 164-165
The immediate upside trigger is a move through resistance around 162.5. If USD/JPY can clear that level while staying above the 20-day moving average, the next area to watch is the 164-165 region.
Failure to break higher would leave the pair vulnerable to a reversal from the top of its range. In that scenario, a move back towards 160 would become the first important downside test.
USD/JPY breakout puts 1986 levels back in focus
USD/JPY has broken above the July 2024 highs and is now approaching 164.50, putting the pair at levels last seen in late 1986. Weekly momentum still looks constructive, but the deeper the breakout extends, the greater the risk that Japanese authorities sharpen their intervention stance.
USD/JPY tests July 2024 high as rate expectations diverge
USD/JPY is approaching the July 2024 high near 161.75 as markets look past the latest Bank of Japan rate increase and continue to price wide US-Japan rate differentials. A break above that area could keep the dollar-yen uptrend intact, but the risk of renewed Japanese intervention remains the main counterweight.
Yen weakness builds as USD/JPY nears key resistance
USD/JPY is pushing back towards 159.50, a level that acted as support and resistance before Japan's late-April intervention. If that barrier gives way, the pair could retest 160.50, while the Bank of Japan's delayed policy meeting and still-elevated oil prices continue to leave the yen exposed.