Last week, I wrote about a USDJPY breakout from a multi-year wedge pattern.
The top of that structure dates back to 2015.
However, so far this week, there’s a decent chance that the entire breakout was false.
Notice the aggressiveness of this latest rotation lower.
The USDJPY is back below that 111.10 key level and is also fast approaching the top of that 2015 wedge.
But this is the opposite of the “rounded retests” I like to trade.
As it is, the pair has nearly wiped out all of last week’s gains in just three trading days.
That isn’t what you want to see as a potential buyer.
That said, the USDJPY still needs to close the day back inside that 2015 wedge for me to call it a false break.
As of this writing, that level is near 109.80/90.
A daily close below that would confirm the false break and expose the bottom of an ascending channel that extends from the 2019 low.
Keep in mind too that we’re coming up on the February close.
If the USDJPY does confirm the false break here, we could see a bearish pin bar materialize on the monthly time frame.
But as long as the pair is above that 109.80/90 support area, sellers have to stay cautious, in my opinion.
That’s the top of the 2015 wedge pattern, so I’d be surprised to see buyers give in without a fight there.
If this does turn out to be a false break, though, I will anticipate an extended move lower.
A false break of any pattern often triggers a move in the opposite direction.
Look no further than what happened to EURCAD on February 6th.
That’s especially true when dealing with a multi-year level like this one on USDJPY.
With that in mind, a daily close below 109.80/90 or so would not only open the door to the ascending channel bottom but perhaps 106.80.
We could even see an extended run at the bottom of the multi-year wedge pattern around 105.50 or thereabouts.
For now, though, the future direction for USDJPY hinges on that 109.80/90 area.