By Russell Glaser – A distinct declining wedge pattern has formed on the monthly USD/JPY chart that could signal a reversal of the downward trend.
The wedge pattern is defined as a triangle pattern with both trend lines that are pointed in the same direction. This falling wedge has both lines pointed to the downside with the upward boundary line falling at a faster slope than the lower boundary.
When a declining wedge pattern forms, it indicates the shorts are weakening in strength and perhaps the bulls will take over with a reversal of the trend. Because this is a declining wedge, we should expect the price to breakout to the upside.
As the long term trend is clearly to the downside, traders will need to be extra patient before taking a long position. There is a need to wait for a clear signal that a breakout to the upside has occurred. Next month the price could test the resistance level at 90.80. A close above this on a monthly basis would confirm the breakout.
However, there is always a chance the pair will surprise the market and break to the downside. Traders should eye a breach below the 82.80 level for a sign of a continuation of the downtrend.
Forex Market Analysis provided by ForexYard.
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