USD/JPY could fall to 107 according to the head and shoulders pattern

Written by: Crispus Nyaga
April 19, 2021
  • The USD/JPY pair declined after strong Japan exports and imports data.
  • The data showed that exports increased by 16.1% in March while imports rose by 4.5%.
  • The pair also declined because of the weaker US dollar

The USD/JPY price declined to the lowest level since March 5 as the US dollar sell-off accelerated. It also declined because of the strong Japanese economic numbers. It fell to 108.04, which was 2.60% below its highest level this year.

Japanese yen chart

Japanese yen strength continues

The Japanese yen strength continued today after the relatively strong economic numbers from the country. According to the Ministry of Finance, exports rose by 16.1% in March, the fastest jump since 2017. This was better than the previous month’s decline of 4.5% and was led by cars, plastics, and semiconductors.

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In the same period, imports rose by 5.7% year-on-year, which was better than the median estimate of 4.7% but lower than the previous month’s 11.8%. These dynamics pushed the trade surplus up from more than 215 billion yen to 663 billion yen.

Still, the year-on-year comparison is a bit skewed since exports and imports slumped in March 2020 after the World Health Organisation (WHO) declared coronavirus a global pandemic. 

Still, the biggest challenge for Japan is that there is an ongoing global chip shortage that could impact the exports. Further, the country is seeing a substantial surge of coronavirus illness even as the government lags behind in vaccinations.

The USD/JPY pair also declined because of the overall weaker US dollar. The dollar index declined by more than 0.50% as forex traders became complacent about the Federal Reserve. While recent numbers from the US have been relatively strong, they believe that the bank will leave interest rates unchanged for a few more years. The US dollar also fell by 0.55% against the British pound, 0.50% against the euro, and 0.72% against the Swiss franc.

USD/JPY forecast

USD/JPY technical chart

On the four-hour chart, we see that the USD/JPY has been on a strong downward momentum recently. The pair has formed a head and shoulders pattern, which is usually a bearish sign. The pair has also moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has continued to fall. Therefore, the will likely continue declining as bears target the next key stop at 107.00, which is 1% below the current level. This is a continuation of the trend that I wrote about last week.