USD/JPY Ends Pullback with Bearish Engulfing Pattern
Short-term momentum has realigned with the long-term downtrend in USD/JPY. Friday’s price action formed a bearish engulfing pattern, signalling that the recent rally may have come to an end, as sellers regained control.
Why USD/JPY Has Been Trending Lower Since July
USD/JPY has been in a steady decline since the Bank of Japan's (BoJ) unexpected shift in policy back in July 2024. The BoJ's decision to increase interest rates caught many off guard, prompting a rapid unwinding of the massive yen carry trade. This move, combined with the Federal Reserve signalling a more dovish outlook with potential rate cuts, has pushed the yen stronger against the dollar. The result? A persistent downtrend in USD/JPY, further confirmed by the 50-day moving average crossing below the 200-day moving average—a well-known "death cross" pattern that underscores bearish momentum.
Bearish Engulfing Pattern on the Daily Candle Chart
Last week, USD/JPY began to retrace higher, approaching both the 50-day moving average and the volume-weighted average price (VWAP) anchored to the July highs. However, Friday’s trading session brought that pullback to a dramatic halt. After starting the day with upward momentum, prices reversed sharply, closing at the week's lows. The resulting daily candle formed a textbook bearish engulfing pattern, where Friday’s price range completely eclipsed the ranges of the previous four days. This is a significant technical signal, as it shows that sellers decisively reasserted control, realigning short-term momentum with the longer-term downtrend.
USD/JPY Daily Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart: Breaking the Retracement
Zooming in on the hourly chart, Friday's price action becomes even more revealing. Early in the session, a sharp increase in selling pressure emerged on elevated volume, snapping the ascending retracement line that had been guiding the short-term rally. This breakdown was accompanied by an aggressive surge in selling, which continued throughout the day. For swing traders, this shift offers an actionable opportunity. Anchoring a new VWAP to the recent swing highs on the hourly chart provides a dynamic moving average that traders could use to sell pullbacks into, aligning trades with the dominant bearish trend.
USD/JPY Hourly Candle Chart
Past performance is not a reliable indicator of future results
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Why USD/JPY Has Been Trending Lower Since July
USD/JPY has been in a steady decline since the Bank of Japan's (BoJ) unexpected shift in policy back in July 2024. The BoJ's decision to increase interest rates caught many off guard, prompting a rapid unwinding of the massive yen carry trade. This move, combined with the Federal Reserve signalling a more dovish outlook with potential rate cuts, has pushed the yen stronger against the dollar. The result? A persistent downtrend in USD/JPY, further confirmed by the 50-day moving average crossing below the 200-day moving average—a well-known "death cross" pattern that underscores bearish momentum.
Bearish Engulfing Pattern on the Daily Candle Chart
Last week, USD/JPY began to retrace higher, approaching both the 50-day moving average and the volume-weighted average price (VWAP) anchored to the July highs. However, Friday’s trading session brought that pullback to a dramatic halt. After starting the day with upward momentum, prices reversed sharply, closing at the week's lows. The resulting daily candle formed a textbook bearish engulfing pattern, where Friday’s price range completely eclipsed the ranges of the previous four days. This is a significant technical signal, as it shows that sellers decisively reasserted control, realigning short-term momentum with the longer-term downtrend.
USD/JPY Daily Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart: Breaking the Retracement
Zooming in on the hourly chart, Friday's price action becomes even more revealing. Early in the session, a sharp increase in selling pressure emerged on elevated volume, snapping the ascending retracement line that had been guiding the short-term rally. This breakdown was accompanied by an aggressive surge in selling, which continued throughout the day. For swing traders, this shift offers an actionable opportunity. Anchoring a new VWAP to the recent swing highs on the hourly chart provides a dynamic moving average that traders could use to sell pullbacks into, aligning trades with the dominant bearish trend.
USD/JPY Hourly Candle Chart
Past performance is not a reliable indicator of future results
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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