USD/JPY Turns Lower After Failing at Key Resistance

The USD/JPY pair reverted to a bearish posture last week, with further downside likely. Resistance from the April low confirmed at 159.45 two weeks ago. That week (Jan. 12), ended with a weekly shooting star doji candlestick pattern that triggered to the downside last week. The bearish pattern shows a failed attempt to breakout above long-term resistance from January of last year at 158.87. It resulted in a weekly closing in the lower third of the week’s range, reinforcing seller control and signaling a potential top.

Subsequently, last week the USD/JPY pair triggered the weekly reversal top below 157.52. That was confirmed by a break below a rising trendline, the 10-week average at 156.63, and bearish rising wedge trigger. This resulted in a four-week low of 155.60 and the lowest weekly closing price in six weeks. The message is that sellers remain firmly in control heading into the weekend, putting the USD/JPY on an accelerated path to test lower prices.

If an upside pullback comes before new lows, the expectation is that resistance will eventually result in a downside continuation. Resistance at the high was confirmed by the January 2025 swing at 158.87 and a 125% extended rising trend channel. Notably, the extended channel top was successfully tested as resistance twice recently, first in November and again with the trend high of 159.45.

After last week’s sharp selling, a short-term bounce remains possible. Key price areas to watch for resistance include the 10-week average, now at 156.63 and a price range from 157.30 and 157.43 that was previously resistance and support, respectively. On the daily chart (not shown) a double top triggered below 157.43, marking it as the neckline of the pattern. Also, be aware that a bounce into last week’s 155.60 to 159.23 price range could result in an inside week formation, which may generate a new bearish setup.

From a macro perspective, USD/JPY volatility continues to reflect U.S.-Japan rate gaps after the Bank of Japan (BOJ) held rates at 0.75% while hinting at gradual hikes tied to wages and inflation. Dollar weakness from U.S. policy uncertainty amplified swings, alongside fears of Japanese intervention near 160. Traders will watch next week’s Fed meeting and fresh BOJ talk for new information that may impact sentiment.

Since a bearish reversal has confirmed from the top of a rising channel, the lower end of the symmetrical pattern becomes a potential eventual target. A bearish continuation signal triggers below last week’s low of $155.60. That would put the first key support range in sight, from the 38.2% Fibonacci retracement and 20-week average, at $154.12 and $153.77, respectively. Also, there is the middle line of the rising channel nearby and some signs of support could also be found around the line. This area warrants close monitoring, since the channel was recently recognized by the market.

In addition to bearish behavior seen in the daily and weekly charts, the monthly chart is setting up a bearish shooting star pattern. Unless there is a sharp advance next week, it looks likely that January will end with the bearish one-month pattern – at confirmed long-term resistance. Of note, the monthly chart shows resistance near the middle line of a large rising channel.