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Japanese yen setup: USD/JPY muted after breakout; AUD/JPY forges double top

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USD/JPY has shown signs of losing momentum after a strong rally; AUD/JPY in a strong uptrend but forming a double top pattern and double top pattern indicates a potential reversal.


original-size.webpSource: Bloomberg


 Diego Colman | Market Analyst, New York | Publication date: Wednesday 24 May 2023 

USD/JPY technical analysis

USD/JPY (US dollar – Japanese Yen) was cautious on Tuesday, moving between small gains and losses around the 138.50 level and showing signs of losing momentum following its stunning run over the past few weeks.

For context, the pair has staged a solid rally since the beginning of the month, rising more than 3.4% after bouncing off its 50-day simple moving average – an important area of demand.

While USD/JPY’s technical outlook remains constructive, the pair may be in a consolidation phase for a few days, establishing a base around the 138.00 handle prior to the next leg higher.

If this scenario plays out, prices may resume their ascent and challenge the psychological 140.00 level before the end of May. On further strength, the focus turns to 142.45, the 61.8% Fib retracement of the 2022/2023 slump.

Conversely, if the bears take advantage of market exhaustion and trigger a reversal, traders should watch support at 138.00, keeping in mind that a move below it could lead to a retest of the 200-day simple moving average.

Sellers may struggle to breach this technical floor, but a breakdown could open the door for a pullback toward a short-term rising trendline at 135.00.

USD/JPY daily chart


original-size.webpSource: TradingView

AUD/JPY technical analysis

AUD/JPY has been in a strong uptrend since late March, establishing higher highs and higher lows progressively, a clear indication that the bulls have been in control of the market for some time.

Despite positive price action, buyers may have a reason to worry as the pair has been carving out a double top in recent weeks after failing to push above 92.35.

A double top is a reversal pattern that often develops in the context of an extended upward move, composed of two similar peaks separated by a depression.

This bearish setup is confirmed once the price completes its “M” resembling shape and breaks below the technical support created by the formation’s intermediate through – the neckline.

In the case of AUD/JPY, the neckline sits at 91.40. If this floor caves in, a steep sell-off could follow in short order.

The potential size of the downward retracement can be quantified by projecting vertically the height of the double top from the break point. This indicates the possibility of a decline towards 90.55 in the near term.

AUD/JPY daily chart


original-size.webpSource: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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