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The US dollar has reversed sharply from the 113.00 area against the Japanese yen currency, largely due to the fact that the latest FED meeting further accelerated the policy divergence between the US and central banks.
Throw in the fact that risk-off trading sentiment has abated, due to the Ukraine/Russia border conflict so far appearing to be talked down, leaving the door open for the situation to find a resolution.
Make no mistake, the US dollar has been turbocharged after the FED meeting, and we could well see the USDJPY pair making a new multi-year high as the US dollar index rips to the upside.
The USDJPY pair has huge upside resistance from the 117.00 level, which comes from a multi-year trendline. The trendline is made by attaching the high of 1999 to the peak to 2015.
Usually, when trendline are so far back in time its signal huge significance. If this trendline were to break, we could probably see the USDJPY pair surge towards the 120.00 level.
Should we see the 117.00 break, the nearest form of upside resistance comes from the 2016 trading high, close to the 118.70 level. I would not be surprised to see the USDJPY pair continuing to surge.
According to the ActivTrader Market Sentiment tool shows that some 80% of traders are bearish towards the USDJPY pair, which is not surprising, as retail are usually on the wrong side of new trends.
Considering the huge reversal from the 113.00 area this week, and the breakout in the buck, and the massive sentiment bias, I think we could probably see more upside ahead in the USDJPY pair.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has formed a massive head and shoulders pattern. We are now seeing a make-or-break scenario playing out.
The USDJPY pair will either invalidate the massive pattern if it breaks past 116.20 or reverse sharply and form a final-right hand shoulders. Personally, I favour a pattern invalidation here.
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USDJPY Medium-Term Technical Analysis
The weekly time frame is showing that the USDJPY pair is approaching very important multi-year trendline, which is also seen on the monthly time frame.
We could see an important test of the rising trendline, currently situated around the 117.00 level. This should define the medium-term price path for the USDJPY pair going forward.
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