The USD/JPY currency pair has witnessed a pullback after reaching the support level near the 100-day Simple Moving Average (SMA). Currently, it is in a downtrend and has broken out of a bearish pattern, thereby heightening the likelihood of experiencing additional declines in the near future.
USD/JPY managed to find support just above the 100-day SMA, specifically at 148.96, and subsequently rebounded. On Monday, an Inverted Hammer candlestick pattern was formed by the pair. Should Tuesday conclude with a positive trading session, this pattern would receive confirmation as a near-term reversal signal, potentially suggesting a recovery and a corrective upward movement.
Nevertheless, despite the possibility of such a corrective upward move, USD/JPY remains entrenched in a downtrend over both the short and medium terms. In accordance with the technical analysis principle which posits that trends typically have a tendency to persist, the odds are tilted in favor of further downside developments eventually materializing.
A breach below the December 2 lows, which stand at 149.08, would serve to confirm the extension of the downtrend. In such a scenario, the first target would be around 147.92. This target has been revised downward due to the widening of a particular pattern, and it represents the 61.8% Fibonacci extrapolation of the height of the bearish Broadening Formation pattern when extrapolated lower.
Moreover, if the bearish momentum continues, USD/JPY could potentially drop further to reach the next target at 147.18, which marks a key swing high witnessed on September 2.
The Moving Average Convergence Divergence (MACD) momentum indicator is also adding to the bearish outlook. It is currently diverging away from its red signal line, which is a bearish sign. Additionally, on an intraday basis, it has fallen below the zero line. Should it close below zero, the bearishness of the indicator reading would be further enhanced, strengthening the case for continued downward pressure on the USD/JPY pair.
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