USD/JPY has recently bounced from key support near the August 5 lows, forming a large, bullish Hammer Japanese candlestick pattern on the 4-hour chart. This could potentially signal the beginning of a significant pull-back or correction higher in the near future.
USD/JPY 4-hour Chart
The Relative Strength Index (RSI) has recently exited oversold territory, providing a buy signal and indicating a higher likelihood of a counter-trend correction. Additionally, the RSI has formed a double bottom pattern from its previous oversold state on September 4, further supporting the case for a bullish reaction.
While the short-term trend remains bearish, it is important to note that it is still too early to confirm a full reversal of the trend. The correction higher may lose momentum soon, potentially leading to a resumption of the downtrend. As the saying goes, “the trend is your friend,” and the odds currently favor a continuation lower.
For a confirmation of a continuation lower, a break below the August 5 lows at 141.69 would be necessary. In such a scenario, the pair could potentially fall to initial support at 140.44, which corresponds to the December 2023 lows.
Analysis:
The recent rebound in USD/JPY from key support levels and the formation of a bullish candlestick pattern indicate the possibility of a significant pull-back or correction higher in the near future. The exit of the RSI from oversold territory and the formation of a double bottom pattern further support the case for a bullish reaction. However, it is important to remain cautious as the short-term trend remains bearish, and a confirmation of a continuation lower would require a break below the August 5 lows. Traders should closely monitor these key levels to assess the potential direction of USD/JPY and make informed investment decisions.