Japanese yen hotspots
USD / JPY attempts to decline after the half-yearly certificate Chairman of the Federation Jerome Powell longer-term U.S. Treasury profitability setback in the middle and the exchange rate may continue to rise before Federal Open Market Committee (FOMC) interest rate decision on 28 July, as the central bank is expected to maintain its current policy.
Traces of the USD / JPY interest rate will recover in US yields before the interest rate decision
USD/JPY appears to be monitoring the recovery in US yields as it prolongs the move from a lower monthly level (109.06) back to a 50-day SMA (109.98) level, and a further improvement in risk appetite could keep the exchange rate up as a Fed official due to rising inflation.
It seems as if the FOMC is taking a gradual approach to reducing its emergency measures when President Powell told U.S. lawmakers that central bank will “Announce the announcement in time to reduce the pace of purchases,“ and the commission may simply try to buy time before the quarterly meeting in september “The standard for significant further development of the Committee was generally considered not to be met.”
As a result, most of the FOMC could undermine the recent USD / JPY rebound, as it is likely to drag on Treasury revenues, but a significant change in future monetary policy guidelines could trigger a bullish reaction. US dollar when the central bank prepares the initial exit strategy.
In the meantime, the USD / JPY may continue to reverse its decline from a monthly high (111.66) amid increased risk appetite, but a further rebound in the exchange rate may contribute to a change in retail sentiment, as observed earlier this year.
The IG customer mood report shows 45.73% of traders are now network long USD / JPY short and long trader relationships stands 1.19 to 1 p.m.
The number of net long traders is 7.79% lower than yesterday and 17.82% lower than last week, while the number of net short traders is 2.84% higher than yesterday and 10.67% higher than last week. The rise in the net long position may depend on profit-taking behavior as the USD / JPY moves to a fresh high of the week (110.59), while the rise in the short net interest rate has boosted retail sales, with 49.41% of traders having a few online lengths last week.
That being said, current market conditions may keep the US dollar / JPY ahead of the Fed’s exchange rate decision, as the exchange rate appears to be monitoring the recovery in US yields and decrease from the highest level of the year (111%).66) may prove a broader trend correction as the exchange rate bounces back from the 50-day SMA (109.98).
USD / JPY exchange rate chart
Source: Trading View
- USD / JPY approached pre-pandemic level a “golden cross” realized in March, where the composition of the bull ‘s flag opened in the same period when the exchange rate was the highest of the year (110.97).
- The Relative Strength Index (RSI) showed similar dynamics as the indicator rose for the first time since February 2020, but the withdrawal of overbought territory has undermined this year’s upward trend, pushing the USD / JPY briefly below the 50-day SMA (109.98) for the first time since January.
- Nevertheless, the USD / JPY reversed its lower level before March (106.37) to largely eliminate the risk of head and shoulder formation, with the exchange rate rising above the moving average to trade at an annual high in June (111.12).
- A similar scenario has emerged in July as the exchange rate trades with annual fresh record (111.66), failed pacets until close below the 109.40 (50% retracement) to 110.00 (78.6% expansion) range, bringing the Fibonacci overlap radar around about 111.10 (61.8% expansion) to 111.60 (38.2% retracement).
- To open the highest level in February 2020 (112.23), a Fibonacci overlap range of 111.10 (expansion 61.8%) to 111.60 (38.2% retracement) is required, with the next area of interest being around 112.40 (61.8 % retracement) 112.80 (expansion 38.2%).
– Written by currency strategist David Song
Follow me on Twitter at @DavidJSong