USD/JPY prediction as a double-top pattern forms

The USD/JPY price has regained its bullish momentum as the divergence between the Federal Reserve and the Bank of Japan (BoJ). The pair is trading at 130.53, which is close to the year-to-date high of 131.62. It has risen by more than 15% year-to-date, making yen the worst-performing G7 currency.

Fed and BoJ divergence

The USD/JPY has been in a strong trend in the past few months as the Fed and BOJ divergence on monetary policy continues. 

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The Bureau of Labor Statistics (BLS) published strong economic numbers on Friday last week. The data revealed that the American economy added over 390k jobs in May helped by the services sectors like hotels and restaurants. The unemployment rate remained at historic lows while wages rose by 5.2%.

Therefore, with inflation being at elevated levels, analysts believe that the Federal Reserve will continue with its hawkish policies. It has already started hiking interest rates and analysts believe that it will implement three more 0.50% hikes. 

The Fed has also started implementing its quantitative tightening strategy by reducing its balance sheet by $47 billion. If its plan stocks, the bank is expected to double its QT program to about $97 billion.

Therefore, the BOJ and the Fed are moving in different directions. While the Fed is expected to keep hiking interest rates, the BOJ is expected to maintain its dovish tone. Governor Kuroda has pointed to lower interest rates for some time.

Looking ahead, the USD/JPY pair will react to several important events this week. For example, on Tuesday, Japan will publish the latest household spending and overtime pay data. They will be followed by the latest Japan GDP numbers on Wednesday. 

Meanwhile, in the United States, the statistics agency will publish the latest consumer inflation data on Friday.

USD/JPY forecast

The daily chart shows that the USD/JPY pair has been in a strong bullish trend in the past few months. Along the way, the pair has managed to move above the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has been rising as well. 

A closer look shows that the pair is forming a double-top pattern, which is usually a bearish sign. Therefore, there is a likelihood that the pair will have a strong pullback in the coming days. However, a move above the resistance at 131.16 will invalidate the double-top pattern and lead to more gains.

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