Is USD/JPY finally ready to break out?

USD/JPY has not been a friend of Yen traders as of late.  But is it finally ready for a move?  On a daily timeframe, we can see that  during the first half of 2021, USD/JPY moved one way: higher.  The pair put in a low of 102.59 on January 6^th and made a high on July 3^rd at 111.65.   However, since then, USD/JPY has been trading in a symmetrical triangle and consolidating, as price approaches the apex.  On September 8^th, the pair made a false breakout above the top of the triangle but was halted and send lower at horizontal resistance near 110.46.  Today, USD/JPY appears to be making a move below the triangle. Could this be the move Yen traders have been waiting for enter a position in USD/JPY?

Source: Tradingview, Stone X

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As price approaches the converging trendlines at the apex of a symmetrical triangle, there is typically little volatility until price breaks out.  This can be said for the price action of USD/JPY on a 240-minute timeframe.  For nearly 1 month (since August 18^th), USD/JPY has traded between 109.41 and 110.45, a range of 104 pips.  Today, as price broke lower out of the triangle on the daily timeframe, it made a run towards those lows, reaching 109.53.   (Note at the time of this writing, the last candle was forming a hammer, a sign or a reversal.  However, there is still nearly 1 hour and 10 minutes left in the timeframe for the candle to form).  Support below is at 109.41 then the August 6^th lows at 109.11.  The August 6^th lows are further down near 108.70.  There is resistance at yesterday’s lows near 109.90, then today’s highs at 110.16.  Above there, resistance is the range highs at 110.46.

Source: Tradingview, Stone X

Everything you should know about the Japanese Yen

As is often the case, USD/JPY and US 10-year yields tend to be positively correlated.  The current correlation on a 240-minute timeframe is +0.83.  Correlations above +0.80 and below -0.80 are the most reliable. Therefore, is US 10-year yields move in one direction, USD/JPY tends to move in the same direction.

As one may expect, US 10-year yields have been trading in a similar channel as USD/JPY since August 5^th, between 1.217 and 1.385.   Similarly, when one looks at a daily timeframe, a similar breakdown out of a triangle can be seen.  However, this triangle is a rising pennant, against the trend.  The target for this triangle is the length of the “pole”, added to the breakdown point of the pennant.  This projects a target near 0.81, just above horizontal support near 0.79. 

Source: Tradingview, Stone X

USD/JPY and US 10-year yields are highly correlated.  Both are breaking down from triangle formations, however yields look to be breaking down from more of a corrective triangle. Therefore, if yields continue moving lower over the next few weeks, USD/JPY should move with it!

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