Trend reversal looks highly likely
Last Friday, Haruhiko Kuroda, the Governor of the Bank of Japan, confirmed the intention of the regulator to keep loosening the monetary policy. The governor considers inflationary risks to be minimal and not serious enough to adjust the monetary policy of the Bank of Japan. The main task for the regulator today is to control the yield curve and to buy unlimited amounts of government bonds. Therefore, the almost zero yield of Japanese government bonds should remain the same. Amid the lack of macroeconomic news last week, the USD/JPY pair traded under the market sentiment shaped by covid lockdowns in China and the Russia-Ukraine conflict. In general, market optimism was low as the above-mentioned factors may trigger a recession, which worries investors. Of course, technical factors also played their role. Let's have a look at the technical picture of the pair.
Weekly chart
First, let's analyze USD/JPY on the weekly time frame. Last week, I assumed that the pair had completed growth and would soon turn to the downside, at least for a correction. So, my forecast for the week of May 16-20 was right. The most that the bulls managed to do was to push the quote to 129.75. They even failed to test the key historical and psychological level of 130.00. At the same time, the pair found strong support near another significant level of 127.00. As you can clearly see on the chart, the price rebounded from 127.08 and closed the week at 127.90. Today, the usd/jpy bears have tested support when approaching the previous lows and initiated a rebound. In case of a true breakout of the 127.00 level and the close of the weekly trade below this mark, the pair will drop to the red Tenkan line of the Ichimoku Indicator located at 126.31. This can easily happen this week if market conditions allow. To regain control, the USD/JPY bulls need to retest the previous high of 129.75 and close the weekly session above this level. It is even better to finish the weekly session above the significant level of 130.00.
Daily chart
On the daily chart, we can clearly see the narrow sideways channel where the dollar/yen pair is trading at the moment. In my opinion, the direction of the price after leaving the range of 129.75-127.08 will determine the further trajectory of the pair. Given the reversal candlestick patterns on the weekly chart, as well as the fact that the Tenkan and Kijun lines are located right below the strong technical level of 129.00, I recommend selling the pair from the price area of 128.80-129.00. At the same time, reversal candlestick patterns may also appear in the above-mentioned zone on lower time frames. I wouldn't recommend buying the pair now as the reversal of the trend is highly likely.
Good luck!
