USD / JPY consolidating within a downward triangle, possible bearish break

• USD / JPY is experiencing moderate trade just below the 109.00 level ahead of key events later in the week.
• Technically speaking, the pair is consolidating within a descending triangle that could be subject to a bearish breakout.

It has been a moderate start to the week for him USD/JPY, which has picked up where it left off last Friday and continues to oscillate between the level of 108.60 and 109.00. The lack of new fundamental catalysts to watch out for over the weekend – the US-China talks seem to have come to nothing as expected – means that the uninspired price action isn’t really very surprising. Additionally, currency markets are expecting a number of key fundamental catalysts later in the week.

Performance of the day

Amid moderate trading conditions, it appears that USD / JPY has consolidated within a descending triangle pattern. These usually break down. The hypotenuse of the triangle is a downtrend linking lower and lower highs since March 18. The bottom of the triangle is the end of last week’s lows around 108.60. A break below this zone would open the door for a move towards support in the form of the March 9, 10 and 11 lows around 108.40. Alternatively, a break above the hypotenuse would open the door for a run to recent highs above 109.00 and at the 109.30 area.

Three factors are worth looking at this week for USD / JPY;

1) Fed Speech: Fed Chairman Jerome Powell is speaking three times and other key Fed members will also speak; Fed members are expected to stick to the Fed’s usual dovish script, something that (as was the case last week), could present some impediment to the US dollar.

2) US Economic Data: Preliminary Markit PMIs for March will be released on Friday and will provide timely information on the state of the US economy this month and investors will expect a robust survey after regional surveys from the Fed in March last week far exceeded expectations. Core inflation for the PCE (the Fed’s favorite inflation gauge) will be released on Friday and will be closely monitored as usual.

3) US Government Bond Yields: The recent bullish streak in US government bond yields has been bullish for USD / JPY, as it has significantly widened the rate spreads between USA / Japan. If the bull run continues this week, this should support the pair.

Chart of four

Technical Levels