The USD/JPY price has been on an upward trend since the beginning of the year, with the pair reaching new year-to-date highs in early May. However, the recent strength of the US dollar has led to a break in these highs, with the pair now trading in a rising wedge pattern.
The US dollar has been gaining strength against most major currencies in recent weeks, as investors anticipate a faster-than-expected economic recovery in the United States. This has been fueled by a combination of factors, including the successful rollout of COVID-19 vaccines, the passage of a massive stimulus package, and improving economic data.
As a result, the USD/JPY pair has been on an upward trajectory, with the pair reaching a new year-to-date high of 110.96 on May 6th. However, this level proved to be a strong resistance level, and the pair has since retreated from these highs.
One factor that may be contributing to the recent weakness in the USD/JPY pair is the rising wedge pattern that has formed on the daily chart. A rising wedge is a bearish chart pattern that occurs when the price of an asset is making higher highs and higher lows, but at a decreasing rate. This indicates that the bullish momentum is weakening, and that a reversal may be imminent.
In the case of the USD/JPY pair, the rising wedge pattern has formed over the past few weeks, with the upper trendline acting as a strong resistance level. The pair has now broken below the lower trendline of the wedge, which is a bearish signal that suggests that the pair may continue to decline in the coming days and weeks.
However, it is important to note that technical analysis is just one tool that traders use to make trading decisions. Fundamental factors such as economic data releases, central bank policy decisions, and geopolitical events can also have a significant impact on currency prices.
In the case of the USD/JPY pair, traders will be closely watching the upcoming US inflation data, which is due to be released on May 12th. Higher-than-expected inflation could lead to a further strengthening of the US dollar, which could push the pair higher. On the other hand, weaker-than-expected inflation could lead to a reversal in the recent USD strength, which could cause the pair to decline further.
In conclusion, the recent break in new year-to-date highs for the USD/JPY pair is a reflection of the strength of the US dollar, which has been fueled by improving economic data and stimulus measures. However, the rising wedge pattern on the daily chart suggests that the bullish momentum may be weakening, and that a reversal may be imminent. Traders will be closely watching upcoming economic data releases and events to determine the direction of the pair in the coming days and weeks.
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