USD/JPY rallies and it seems ready to develop a larger increase on the H4 chart. The pair has finally escaped from a Falling Wedge pattern, a retest will bring a great buying opportunity.
The Dollar is strong, even if the USDX moves sideways in the short term. USD/JPY surges as the Yen is weakened by the Nikkei's increase, the stock market recovery could push the pair higher. The stock market increases after the massive drop as the global economy is trying to restart, even if the COVID-19 pandemic makes new victims, the peak of the epidemic seems to have passed for now.
The pair was trapped within a Falling Wedge pattern, but it has made an aggressive breakout and now is targeting the 38.2% retracement level and the Pivot Point (107.62) level. I've said in a previous analysis that USD/JPY seems oversold after the failure to approach and retest the inside sliding parallel line (SL) of the orange descending pitchfork. The price has moved away from this dynamic support, so the breakout above the upper median line (UML) and above the pattern's resistance suggests another leg higher.
USD/JPY has failed to stabilize below the 50% retracement level, the false breakdown from the Falling Wedge has signaled an upside valid breakout and a bullish movement.
- USD/JPY TRADING TIPS
We may have a great buying opportunity if USD/JPY comes back to test and retest the broken resistance levels, UML and the downtrend line, or if it will make a valid breakout above the 38.2% level and above the monthly PP (107.62) to make another higher high.
The major upside target remains at the 111.71, USD/JPY could climb towards this high after the failure to approach and reach the median line (ML) of orange descending pitchfork. The near-term target is seen at the PP (107.62) and at the 38.2% level, R1 (108.90), R2 (110.65), and the R3 (111.92) levels could be used as targets as well.
The outlook is bullish on the short term as long as the pair stays above the upper median line (UML) and above the 50% retracement level. Only a valid breakdown below the 50% level and below the S1 (105.87) will invalidate a further increase and will give us a chance to sell USD/JPY again.
