Japanese Yen Conversation Points
USD/JPY fell to a new weekly low (127.02) amid recent weakness in US Treasury yields, and a soaring development in the Relative Strength Index (RSI) may warn of a larger pullback in the exchange rate if the oscillator fell below 70 to indicate a textbook sell signal.
Japanese Yen Forecast: USD/JPY Exposed to RSI Sell Signals
USD/JPY boosts the strength of the US Dollar seen across the foreign exchange market as there appears to be a shift in investor confidence, and a further decline in increased risk may keep the exchange rate under pressure with the US stock market at the peak of the annual lowest test.
As a result, USD/JPY may continue to post a series of lower highs and lows throughout the remainder of the month as the RSI shows waning bullish momentum, and Bank of Japan (BoJ) interest rate decision. may not have much influence on the exchange rate as the central bank is still reluctant to move away from the Quantitative and Qualitative Easing Program (QQE) with Yield-Curve Control (YCC).
At the same time, update to US Personal Consumption Expenditure Price Index (PCE) may also generate limited reaction as sticky inflationary signs are likely to keep the Federal Reserve on track to implement a series of rate hikes in the next few months, and a deviant path to monetary policy may keep USD/JPY as Chairman. Jerome Powell and Co. expect to “began reducing holdings of Treasury securities and agency debt and agency mortgage -backed securities at the next meeting.”
On the other hand, the decline from the annual high (129.41) may turn into a correction in a broader trend as the Federal Open Market Committee (FOMC) shows greater willingness to normalize monetary policy at a faster pace, and the tilt in retail sentiment appears poised. to continue as traders have posted net short USD/JPY since the end of January.
The IG Customer Sentiment Report show only 24.82% of traders are at this time the length of the net USD/JPY, with a short to long trader ratio stand up at 3.03 to 1.
The number of net-long traders was 3.85% lower than yesterday and 5.58% lower than last week, while the number of net-short traders was 2.25% higher than yesterday and 0.87% lower than last week. The decline in net buy positions came as USD/JPY slumped to new weekly low (127.02)while the fall in net short interest did little to help alleviate congestion behavior as 30.09% of traders were net pair last week.
Thus, a different path between the FOMC and BoJ may maintain the USD/JPY when market participants prepare for higher US interest rates, but a movement below 70 in the RSI is likely to accompany a larger pullback in exchange rates such as prices. actions seen in the previous month.
USD/JPY Rate Daily Chart
Source: Trade Outlook
- USD/JPY crossed the May 2002 high (129.09) when it rose to a new annual high (129.41) earlier this month, but the seven-week rally is likely to unravel amid a lack of momentum for break/close above the Fibonacci overlap around 129.40 (261.8% expansion) to 130.20 (100% expansion).
- Developments that manifest in Relative Strength Index (RSI) can warn of a larger pullback in USD/JPY if the oscillator falls below 70 to indicate a textbook sell signal, with movement below the region of 126.20 (78.6% expansion). bring 2015 high (125.86) back on the radar.
- The next area of interest comes around 122.40 (78.6% shift) to 123.10 (61.8% expansion) followed by the 120.90 region (50% expansion) to 121.00 (161.8%).
- Need to rest/close on top overlaps around 129.40 (261.8% expansion) to 130.20 (100% expansion) to bring April 2002 high (133.82) back on the radar, with the next interesting area to come 135.20 (100% expansion).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong