USD/JPY breakout or yet one more fakeout?

It’s no secret that the pair has largely been consolidating in between 146.00 to 149.00 for the better part of the last two months. And more specifically, the range is being held between the 100 (red line) and 200-day (blue line) moving averages. There was a jump higher towards the end of July (after the upper house election results), one that even saw the pair break above 150.00 at the time. However, that was then deterred by the BOJ.

All of that alongside Trump’s tariffs and a flagging dollar put the pair back in range and price action has struggled to get out of confinement since. That is until what we’re perhaps seeing this week.

This is the first close outside of the 100 and 200-day moving averages since the beginning of July, if you were to discount the fakeout at the end of July that is.

So, what’s next for the pair? Does this technical break signify a breakout move to the upside for the pair now?

Well, I’d argue not quite. While it does look promising, there’s still a couple of key hurdles. For one, it’s not really backed by much of a change in dollar conviction since last week. That especially as we haven’t gotten to the more relevant US data on the week.

Secondly, the short-term resistance region around 149.10-18 is still also adding some headwinds for buyers to truly capture a stronger break. And I would put more emphasis on the 100-week moving average at 149.67 and the 150.00 mark in general in closing out this week. Those would be more significant technical levels that buyers have to break in order to truly set out a more convincing path back to the upside.

Just for some context, the end July jump fizzled and the weekly close did not break above both the 100-week moving average and 150.00 level. So, the big picture argument for that still remains.

In terms of fundamentals, it’s a tricky one. The BOJ looks poised to get back on track to hike rates again but there’s still relative uncertainty on the economy, wages, inflation, and Japan’s political happenings. As for the dollar, there’s clear headwinds with the Fed on the opposite path and the continued pessimism surrounding investor sentiment on the currency.

Taking those factors into consideration, the path of least resistance seems to be for a move lower in due time amid narrowing rate differentials. That being said, you wouldn’t want to rule out a squeeze up in the dollar after having been sold off heavily in recent months.

As always, in trying to make sense of what moves are playing out, the charts will go some way in guiding the next conviction play.