A great technical setup is forming on USD/JPY, where there’s a promising potential for a bullish reversal. Here's a breakdown of the situation.
The pair has been in a strong downtrend recently, and within this, we saw a symmetric triangle formation, marked by black lines, which is a typical consolidation pattern. The price initially broke out of this triangle to the downside, triggering a strong sell signal. However, things are starting to change.
The price has now approached a key orange horizontal support and, notably, there was a false breakout below this level. This false breakout has led to the formation of a double bottom, highlighted within a green rectangle—a classic bullish reversal pattern. This formation is encouraging and signals the potential for buyers to take control.
For this bullish reversal to be confirmed, we need the price to break above and close above the red neckline of the double bottom formation. A daily close above this neckline would provide a clear buy signal, capitalizing on both the false bearish breakout and the double bottom setup.
Conversely, if the price fails to hold and instead closes below the orange support, that would negate the bullish scenario and act as a strong invitation to go short.