USDJPY Triangle Pattern Hints at an Eventual Break-Out

Summary:

The USDJPY pair has formed a triangle pattern. It is reacting to the country's GDP data for the second quarter and a decline of overtime pay

The USDJPY pair is little changed today as traders react to weak overtime pay in Japan and the confirmation of the country’s recession. The pair is trading at 106.25, which is in the same range it has been in the past few days.

The Japanese economy contracted by 7.9% in the second quarter, leading to an annualised decline of 28.1%. That decline was better than the 8.1% and 28.6% that analysts were expecting. It was also the third straight quarter that the economy has contracted.

According to the ministry of finance, all sectors of the economy contracted. Household consumption, which is an important part of the Japan’s economy declined by 7.6% in the second quarter as people stayed at home. They also avoided non-essential spending because of the country’s state of emergency.

At the same time, companies decided to pause on investments as they focused on preserving their capital. Also, because of lockdowns in other countries, the country’s exports declined by 3%.

The USDJPY pair also reacted mildly to the country’s overtime pay. The data showed that overtime pay fell by 16.6% in July after falling by more than 24% in the previous quarter. That is because, as evidenced by recent PMI data, the country’s companies had limited orders during the quarter.

USDJPY technical outlook

The USDJPY pair is trading at 106.25, which is in the same range that it was in the past few days. On the four-hour chart, this price is above the 50-day and 100-day exponential moving averages. It is also forming a triangle pattern that is shown in blue. Also, it has just moved above the 50% Fibonacci retracement level. This retracement joins the highest point on July 1^st with the lowest level in July.

Therefore, with the triangle pattern nearing its confluence, I suspect that the pair will breakout higher, with the next target being at 106.93. This price is the highest swing on August 28. However, a move below the lower line of the triangle pattern will invalidate this forecast.