USDJPY could be in for a long-term reversal from its downtrend as it forms an inverted head and shoulders pattern on its daily chart. Price is testing the neckline and a break higher could set off a climb that’s the same height as the chart formation.
This pattern spans around 104.50 to 109.00, likely leading to a rally that’s around 450 pips. Price also has yet to break past the 200 SMA dynamic inflection point to confirm that an uptrend is underway.
On the subject of moving averages, the 100 SMA is below the 200 SMA to suggest that the path of least resistance is to the downside or that the selloff is more likely to gain traction than to reverse. However, the faster-moving MA seems to be turning higher to attempt to narrow the gap and possibly go for a bullish crossover later on.
RSI is in the overbought zone, though, and is turning lower to suggest a return in selling pressure. Stochastic is also in the overbought territory to reflect exhaustion among buyers. This could mean that a quick pullback might be in order before the pair heads any further north.
There’s not much in the way of top-tier reports from both the US and Japan for the rest of the week, which could leave the dollar and yen both sensitive to overall market sentiment. The outcome of US-China trade talks and Brexit negotiations could have an impact on where these currencies might be headed.
Still, it’s also worth noting that traders are anticipating further easing from the BOJ as data from Japan has been persistently weaker in the past months. The Fed has already cut rates, so the path of least resistance in terms of selling off might be on the yen this time.