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  • USD/JPY witnessed fresh selling on Friday and eroded a part of the overnight gains.
  • The formation of a bearish flag pattern supports prospects for additional weakness.
  • A sustained break below the 104.55-50 area needed to confirm a bearish breakdown.

The USD/JPY pair struggled to capitalize on the previous day’s positive move, instead witnessed some selling on Friday and was last seen trading with modest losses around the 104.75 region.

Meanwhile, the pair has been oscillating in an upward sloping channel over the past 24 hours or so. Given this week’s sharp pullback from the 105.75 region, the mentioned channel constitutes the formation of a bearish flag pattern on hourly charts. The set-up seems tilted firmly in favour of bearish traders.

The bearish set-up is reinforced by the fact that oscillators on the daily chart maintained their bearish bias and have been struggling to gain any meaningful traction on hourly charts. That said, it will be prudent to wait for a bearish confirmation before positioning for any further near-term depreciating move.

A convincing breakthrough the trend-channel/flag pattern support, around the 104.55-50 region, will set the stage for a slide back towards September monthly swing lows, around the 104.00 mark. Some follow-through selling should pave the way for an extension of the bearish trajectory further towards the 103.10-103.00 area.

On the flip side, attempted recovery moves might continue to confront stiff resistance near the key 105.00 psychological mark. The mentioned barrier coincides with the top boundary of the channel, which if cleared decisively will negate the bearish outlook and prompt some near-term short-covering move around the USD/JPY pair.

A subsequent move beyond the 105.20 horizontal support breakpoint might then assist the USD/JPY pair to aim back to reclaim the 106.00 mark with some intermediate resistance near mid-105.00s.

USD/JPY 1-hourly chart


Technical levels to watch