USD/JPY rising wedge and channel pattern points to a pullback

The USD/JPY price rose to the highest level in almost seven months helped by the relatively strong US dollar. It is trading at 106.95, which is 4.25% above the lowest level this year.

Strong Japanese recovery

The Japanese economy is having a relatively strong recovery, according to the recent economic numbers. 

In a report yesterday, Markit said that the country’s manufacturing PMI increased from 49.8 to 51.4. This increase was better than the median estimate of 50.6. It was also the highest it has been since January 2019. 

The manufacturing PMI is important because of the important role it plays for the Japanese economy. In 2017, data from the government showed that the sector employs more than 17 million people.

Today, the USD/JPY rose after the latest employment numbers. According to the statistics agency, the country’s unemployment rate remained at 2.9% in January. This increase was slightly better than the expected increase to 3.0%. This means that Japan has the lowest unemployment rate in the developed countries. In contrast, the US has a rate of 6.3%.

Further data showed that the country’s jobs to applications ratio increased from 1.06 to 1.10. This was also a better increase than the expected 1.06. 

The USD/JPY price is therefore rising because of the overall performance of the US dollar. The greenback has risen against all currencies that comprise the dollar index (DXY). It has risen by 0.30% against the Swiss franc and by 0.20% against the euro.

USD/JPY technical outlook

The four-hour chart shows that the USD/JPY pair has formed an ascending channel that is shown in black. At the current price, the pair is slightly below the upper side of the channel. It has also moved above the 25-day and 15-day exponential moving averages. 

Most importantly, the pair has also formed a rising wedge pattern. In our free forex course, you will find that this pattern is usually bearish. 

Therefore, in the near term, there is a likelihood that the pair will retreat as bears target the next support at 106.50.