USD/JPY has been showing signs of a potential bullish reversal after bouncing off key support near the August 5 lows. The currency pair is currently forming a bullish Hammer Japanese candlestick pattern on the 4-hour chart, indicating a possible pullback or correction higher in the near future. The Relative Strength Index (RSI) momentum indicator has also exited oversold territory, giving a buy signal and suggesting a counter-trend correction may be imminent.
While the short-term trend for USD/JPY remains bearish, the formation of the bullish candlestick pattern and the RSI buy signal indicate a possible shift in momentum. However, it is important to note that it is still too early to confirm a full reversal of the trend. The pair could experience a temporary correction higher before resuming its downward trajectory in line with the prevailing trend.
In order to confirm a continuation lower, USD/JPY would need to break below the August 5 lows at 141.69. If this support level is breached, the pair could potentially fall towards the next support level at 140.44, which corresponds to the December 2023 lows. It is essential for traders to keep a close eye on these key support and resistance levels to determine the future direction of USD/JPY.
Technical analysis suggests that “the trend is your friend,” and the current bearish trend in USD/JPY favors a potential continuation lower in the long run. However, the recent bullish signals on the 4-hour chart indicate a possible short-term correction higher before the pair resumes its downward movement. Traders should exercise caution and closely monitor price action to make informed trading decisions based on the evolving market conditions.
