USD/JPY double-top pattern points to further weakness

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 30, 2021
  • The USD/JPY pair struggled after the relatively weak US GDP data.
  • The pair has formed a double-top pattern on the 4H chart.
  • It will next react to the latest US PCE data.

The USD/JPY tilted lower after the relatively weak US GDP data and the strong Japan unemployment rate and industrial production data. The pair declined to 109.36, which was the lowest level since July 20. 

Japan economic data

The Japanese economy did relatively well in June as the country ramped up its preparations of the summer Olympics. As a result, the country’s unemployment rate declined from 3.0% in May to 2.9% in June. At the same time, the jobs to applications ratio rose from 1.09 to 1.13. This increase was better than the median estimate of 1.10. 

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Historically, Japan has a tighter labour market than other countries like the UK and the US. Its current unemployment rate compares with the US 5.9% and UK’s 4.9%. This is because many people in Japan tend to work at the same companies. Also, with an ageing population, companies are usually keen to retain scarce workers. 

The USD/JPY also declined after the string industrial production data. According to the statistics agency, the country’s industrial production rose to 6.2% in June after falling by 6.5% in the previous month. This increase was better than the median estimate of 5.0%. The agency expects that the production will decline by 1.1% in July and bounce back by 1.7% in August. 

Further data showed that Japan’s housing starts rose by 7.3% in June while construction orders rose by 7.5%.

The pair also declined after the relatively weak US GDP data was published on Thursday. The data revealed that the economy expanded by 6.5% in the second quarter. This was a marginal improvement from the previous 6.4%. It was also worse than the median estimate of 8.5%. 

Looking ahead, the pair will react to the latest US purchaser consumption expenditure (PCE). The numbers are expected to show that the country’s inflation rose substantially in June.

USD/JPY forecast

USD/JPY

The four-hour chart shows that the USD/JPY pair formed a double-bottom pattern at 110.60 in July. The neckline of this pattern was at 109.05. In price action analysis, a double-top is usually a sign that the price will break out lower. The pair remains below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved lower. Therefore, the pair will likely keep falling as bears target the next key support at 109.00.

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