- USD/JPY has pulled back after touching down on support at the 100-day SMA.
- The pair is in a downtrend and has broken out of a bearish pattern, raising the risk of further declines.
USD/JPY has found support just above the 100-day Simple Moving Average (SMA) at 148.96 and bounced.
On Monday, the pair formed an Inverted Hammer candlestick pattern and if Tuesday ends as a green up day it will gain confirmation as a near-term reversal signal. This could indicate a recovery and correction higher.
USD/JPY Daily Chart
Despite the risk of a correction higher, USD/JPY remains in a downtrend on a short and medium-term basis and because of the technical analysis principle that trends tend to extend, the odds favor more downside evolving eventually.
A break below the December 2 lows at 149.08 would confirm an extension of the downtrend to the first target at around 147.92 (revised down due to pattern widening), the 61.8% Fibonacci extrapolation of the height of the bearish Broadening Formation pattern extrapolated lower.
Further bearishness could carry USD/JPY to the next target at 147.18, the September 2, key swing high.
The (blue) Moving Average Convergence Divergence (MACD) momentum indicator is diverging away from its red signal line which is bearish and has fallen below the zero line on an intraday basis. If it closes below zero then it will increase the bearishness of the indicator reading.
