USD/JPY Forecast: Bullish Move Could End Up Being A Bearish Bat Pattern

The USD/JPY pair rose to a high of 107.68 in the US session yesterday as the hawkish comments from Fed Chief Jerome Powell triggered a sudden repricing of interest rate risk.

However, the US equities again responded negatively to increased odds of a faster rate hikes. The Dow fell almost 300 points, and hence, the USD/JPY retreated to sub-107.50 in Asia. Further, the Bank of Japan's (BOJ) decision to reduce purchases of the long duration government bonds pushed the pair down to 107.08.

Daily chart

• As seen on the chart above, the descending trendline (drawn from the Jan. 8 high and Feb. 2 high) is still intact.
• However, the spot is trading well above 107.38 (Feb. 26 low), meaning the higher low pattern is still intact. Also, the MACD shows loss of bearish momentum (still below zero, but bars are rising) and Stochastics is gaining altitude. Hence, the upside break of the descending trendline cannot be ruled out.

Scenario I - Pair takes out trendline resistance and completes bearish bat pattern

A daily close above the trendline would indicate a short-term bearish-to-bullish trend change. But the harmonic pattern suggests the bullish break could end up completing a "bearish bat pattern".

The above chart shows  point D (109.92) - is bearish reversal point, according to bearish bat pattern. So, an upside break of the falling trendline could end up being a bull trap. It is worth noting the ascent could be cut short well ahead of 109.92 if the equities continue responding negatively to a pick up in the treasury yields.

Scenario II - Trendline resistance stays intact and pair dips below 106.38

This would signal a violation of the higher lows pattern and could yield re-test of the recent low of 105.55. Further, a sustained move below 105.55 would allow for a deeper sell-off to 102.73 (bullish reversal point as per crab pattern).