USD/JPY (daily chart) has fallen into a tentative consolidation to form a technical pennant pattern. This chart formation occurs after the pair made significant gains starting in mid-November. These gains broke out above the important 80.50 level to reach a 7-month high of 82.82, before retreating slightly in the form of the current pennant. The pattern also occurs within the context of a strong bullish trend extending back to the September 77.12 low. Pennants can be considered trend continuation patterns if the requisite breakout occurs. In this instance of a bullish trend, if a breakout above the upper border of the pennant occurs, price could move towards a potential re-test of the 84.00 area high, last hit in mid-March. The bottom border of the pennant resides around the 81.75 support region. Any significant breakdown below that area could invalidate the pennant pattern and prompt a potential return to the key 80.50 level to the downside.
James Chen, CMT
Chief Technical Strategist
FX Solutions
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