USD/JPY technical analysis: Sits below 106.00, potential inverse head-and-shoulders pattern

• USD/JPY is trapped in a falling channel on the hourly chart.
• The pair could end up creating an inverse head-and-shoulders after falling channel breakout. 

USD/JPY is currently trading largely unchanged on the day at 105.93, having hit a high and low of 106.03 and 105.72, respectively, earlier today.

The pair seems trapped in a falling channel on the hourly chart. A breakout will likely pave the way for a rally to 106.94 – the neckline of the inverse head-and-shoulders pattern.

Acceptance above 106.94 would imply a bearish-to-bullish trend change and open the doors to 108.83 (target as per the measured move method).

On the downside, the recent low of 105.05 is key support, which if breached, would imply a continuation of the sell-off from the Aug. 1 high of 109.32.

Hourly chart

Trend: Bullish above 106.94

Pivot points