This Pattern is Signaling a Big Move in USD/JPY

Matt Weller CMT, CFA is a Senior Market Analyst at Faraday Investment Research. He published a note today on forex.com detailing the symmetrical triangle pattern that is currently forming in the USD/JPY currency pair. He explains the significance of this price action by comparing it to the coiling of a spring:

“As the range continues to contract, energy builds up within the spring. When one of the pressure points is eventually removed, the spring will explode in that direction.”

Weller thinks that the pattern signals that an explosive move is imminent this week and tells readers to expect a breakout in USD/JPY any day now. As for the direction of the breakout, he warns that it’s often difficult to predict which direction the tightening pattern will resolve but mentions that technical analysts often defer to the direction of the dominant trend which for USD/JPY is down.

Weller uses this four-hour candlestick chart of USD/JPY to illustrate his point. The symmetrical triangle pattern is highlighted in purple featuring two converging trendlines. The dominant trend is the red downward sloping line. The two grey arrows are suggesting an explosive move in either direction.

Forex traders will need to keep an eye on this pattern this week and watch for which direction the triangle resolves in. You can read Weller's entire post here.