Market Analysis

USD/JPY Attempts to Reverse Ahead of Monthly Low with US PCE on Tap

Japanese yen hotspots

USD / JPY appears to be in a narrow range as longer-dated US yields remain under pressure, but recent data outputs from the US may affect the exchange rate as the Federal Reserve temporarily keeps inflation rising.

USD / JPY is trying to reverse the lower level of the month when the US PCE touches

USD/JPY has changed little since the end of last week as the US Treasury’s 10-year yield slips below the 50-day SMA (1.63%), but the lack of momentum to test the monthly low (108.34) could keep the exchange rate within a defined range, such as Federal Open Market Committee (FOMC) requires thatthe economy was still far from the Committee’s longer-term goals. “

Image of the US DailyFX economic calendar

The update of the US personal consumption expenditure (PCE) index could affect the USD / JPY, as the key interest rate is expected to rise from 1.8% to 2.9% in March and a significant rise in the Fed’s preferred inflation rate could trigger a bullish reaction in US dollar as it puts pressure The chairman Jerome Powell and Co adjust future monetary policy guidelines.

There seems to be a growing debate in the FOMC about when to change gear Vice-Chairman Richard Claridapromises to “warn” before reducing emergency measuresand the looming update of the Economic Forecasting Summary (SEP) may point to a less dovist outlook, as “several participants suggested that if the economy continues to make rapid progress towards the Committee’s objectives, it could be in meetings at the beginning to discuss a plan to adjust the pace of asset purchases. “

In the meantime, the USD / JPY may face associated conditions as longer-term US yields remain under pressure, but rising retail sentiment increases the likelihood of a further depreciation of the exchange rate as crowded behavior appears to be on the rise again from 2020 onwards.

IG customer mood image for USD / JPY rate

The IG customer mood report shows 56.12% of traders are now network long USD / JPY traders with a long and short relationship stands from 1.28 to 1 p.m.

The number of net long traders is 3.64% higher than yesterday and 18.88% higher than last week, while the number of short-term traders is 6.26% lower than yesterday and 16.02% lower than last week. Jumping due to the long position of the net has dominated the mood in retail 47.47% The share of traders was USD / JPY net last week, while the decline in net short-term interest rates is due to the fact that the exchange rate appears to be declining on a monthly basis (108.34).

That being said, it remains to be seen whether decline from the peak in March (110.97) will turn out to be a correction rather than a trend change as crowded behavior appears to be recovering from 2020, but the exchange rate may continue to trade within monthly intervals, as moving over the left shoulder largely removes the risk of head and shoulder formation.

USD / JPY exchange rate chart

Picture of the USD / JPY daily 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 denied an upward trend this year, USD / JPY fell 50-day SMA (109.09) for the first time since January.
  • Nevertheless, the USD / JPY appears to have reversed the lower level before March (106.37) in an attempt to eliminate the risk of head and shoulder formation, the May exchange rate broke over his left shoulder.
  • USD / JPY appears to be within a specified range amid failed attempts to break / close 108.00 (extension 23.6%) to 108.40 (extension 100%) and the exchange rate may continue to consolidate in the coming days, as it appears to be changing earlier the lowest of the month (108.34).
  • Moving back 50-day SMA (109.09) may reject USD / JPY Fibonacci overlaps around 109.40 (50% retracement) to 110.00 (extension 78.6%), but need a pause / close above the key area open March peak (110.97).

– Written by currency strategist David Song

Follow me on Twitter at @DavidJSong

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