USD/JPY’s Short-Term Topping Confirmed as Bearish Divergence Emerges

The USD/JPY has been in a bullish trend since the start of the year, rising from a low of 127.20 to a high of 137.90. However, last week’s decline in the currency pair has confirmed a short-term topping pattern at the 137.90 level, which is supported by a bearish divergence condition in the 4-hour MACD.

Implications of Short-Term Topping

The short-term topping pattern implies that the near-term trend is shifting from bullish to bearish. The initial bias stays on the downside this week for a 32.8% retracement of the rally from 127.20 to 137.90 at 133.81. This level may offer some support and lead to a rebound, but the near-term risk will stay on the downside as long as the 137.90 resistance holds in case of recovery. A sustained break of 133.81 will carry a larger bearish implication and target the 61.8% retracement at 131.28.

Bigger Picture

In the bigger picture, the downtrend from the 2022 high of 151.93 is tentatively seen as completed at 127.20. However, a sustained trading below the 55-day EMA (now at 134.31) will dampen this bullish view and argue that the fall from 151.93 is still on track to another low below 127.20.

Implications for Traders

For traders, the confirmation of the short-term topping pattern in USD/JPY indicates a potential shift in trend direction from bullish to bearish. This could present trading opportunities for those who are able to capitalize on the new trend. Those who are already long may want to consider taking profit or implementing a stop-loss strategy to protect against further downside risk.

Conclusion

The confirmation of USD/JPY’s short-term topping pattern has important implications for traders. The near-term trend is shifting from bullish to bearish, with initial support at 133.81. However, a sustained break of this level could lead to further downside with the next target at 131.28. In the bigger picture, the downtrend from the 2022 high is tentatively seen as completed at 127.20, but this bullish view could be dampened if the 55-day EMA is breached. Traders should consider these factors when making trading decisions.