USDJPY Short - A Bearish Setup in the Making?
As we dive into the USDJPY chart, I'm seeing several key technical signals that suggest a potential move to the downside. Let’s break it down step by step:
Weekly Timeframe: A Crucial Swing High
First, we zoom out to the weekly chart, where we can observe that USDJPY is currently within a strong swing that recently broke a prior high. This is a crucial moment, as we often see a retest of the upper range of such a swing before the market decides its next move. Will it push higher, or are we preparing for a pullback? I’m leaning towards the latter.
Daily Timeframe: Triple Failures at the High
Dropping down to the daily, the story unfolds further. We’ve seen two previous attempts to break the current daily swing high, only for the market to flush down on this third attempt. This is my first major bearish signal, as failure to maintain momentum often precedes a reversal.
4-Hour Timeframe: No Support in the Pump
On the 4-hour chart, things get even more interesting. I’m not seeing the kind of ladder formation that typically supports sustained pushes to the upside. Instead, the price action looks choppy, lacking the structure that would indicate buyers are in full control. This adds weight to the bearish case.
Weak Stop-Loss Hunt: A Lackluster Liquidity Grab
One more point to consider is the recent liquidity grab (or stop-loss hunt) on the 4-hour chart. While these wicks usually indicate a shakeout of weak hands, this one feels weak, more like a failed attempt to trap traders in the wrong direction. In my experience, when the liquidity grab doesn’t pack a punch, it often signals the market's lack of commitment to push higher.
Timing is Key: The Tuesday Top Pattern
Lastly, an interesting observation – USDJPY has a tendency to form local tops on Tuesdays, a pattern I’ve noticed over time. While this isn't a concrete rule, it’s an intriguing confirmation of the broader bearish setup we’re seeing here.
Fundamental Analysis: Why the USDJPY Could Dump
Fundamentally, USDJPY could be under pressure due to the divergence in monetary policy between the US and Japan. The Bank of Japan (BoJ) remains ultra-dovish, but there are growing signs of internal pressure to shift toward more normalization in policy, particularly with inflation running higher than expected. Meanwhile, the Federal Reserve has signaled that it may pause or slow its rate hikes as US economic growth moderates. This narrowing of the policy gap could weaken the dollar against the yen, especially if we start seeing signs of a BoJ shift or weaker-than-expected US data in upcoming releases.
Furthermore, concerns over global growth and risk sentiment could lead to a stronger yen as a safe-haven asset. If the stock market falters, capital tends to flow back into the yen, exacerbating the potential for a USDJPY decline.
Conclusion: Eyeing the Lower Range
All things considered, USDJPY looks poised for a move lower. A retest of the lower range of the current daily swing seems likely before any potential attempt to push back to the upside. Understanding swing highs and lows and their respective ranges is a key tool in this analysis. Let’s see how the price action plays out in the coming sessions.
Weekly Timeframe: A Crucial Swing High
First, we zoom out to the weekly chart, where we can observe that USDJPY is currently within a strong swing that recently broke a prior high. This is a crucial moment, as we often see a retest of the upper range of such a swing before the market decides its next move. Will it push higher, or are we preparing for a pullback? I’m leaning towards the latter.
Daily Timeframe: Triple Failures at the High
Dropping down to the daily, the story unfolds further. We’ve seen two previous attempts to break the current daily swing high, only for the market to flush down on this third attempt. This is my first major bearish signal, as failure to maintain momentum often precedes a reversal.
4-Hour Timeframe: No Support in the Pump
On the 4-hour chart, things get even more interesting. I’m not seeing the kind of ladder formation that typically supports sustained pushes to the upside. Instead, the price action looks choppy, lacking the structure that would indicate buyers are in full control. This adds weight to the bearish case.
Weak Stop-Loss Hunt: A Lackluster Liquidity Grab
One more point to consider is the recent liquidity grab (or stop-loss hunt) on the 4-hour chart. While these wicks usually indicate a shakeout of weak hands, this one feels weak, more like a failed attempt to trap traders in the wrong direction. In my experience, when the liquidity grab doesn’t pack a punch, it often signals the market's lack of commitment to push higher.
Timing is Key: The Tuesday Top Pattern
Lastly, an interesting observation – USDJPY has a tendency to form local tops on Tuesdays, a pattern I’ve noticed over time. While this isn't a concrete rule, it’s an intriguing confirmation of the broader bearish setup we’re seeing here.
Fundamental Analysis: Why the USDJPY Could Dump
Fundamentally, USDJPY could be under pressure due to the divergence in monetary policy between the US and Japan. The Bank of Japan (BoJ) remains ultra-dovish, but there are growing signs of internal pressure to shift toward more normalization in policy, particularly with inflation running higher than expected. Meanwhile, the Federal Reserve has signaled that it may pause or slow its rate hikes as US economic growth moderates. This narrowing of the policy gap could weaken the dollar against the yen, especially if we start seeing signs of a BoJ shift or weaker-than-expected US data in upcoming releases.
Furthermore, concerns over global growth and risk sentiment could lead to a stronger yen as a safe-haven asset. If the stock market falters, capital tends to flow back into the yen, exacerbating the potential for a USDJPY decline.
Conclusion: Eyeing the Lower Range
All things considered, USDJPY looks poised for a move lower. A retest of the lower range of the current daily swing seems likely before any potential attempt to push back to the upside. Understanding swing highs and lows and their respective ranges is a key tool in this analysis. Let’s see how the price action plays out in the coming sessions.
Note
1. TP hit :)
Entry to breakeven and let it ride.
Note
Stopped out
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.