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The US dollar is testing towards its 200-day moving average against the Japanese yen currency, following recent comments from the Bank of Japan surrounding a new policy assessment in March and potential ratcheting up of QE.
Last week’s recovery from the 104.40 level is looking increasingly impressive. It certainly suggests that the ongoing upmove above the 105.00 handle has legs, and dips are now for buying, in expectation of further strong gains to come.
Traders and investors are clearly speculating that the Japanese central bank could follow through in March and increase QE purchases. One thing if for sure, the current threat of further policy action is giving the USDJPY pair a lift.
Weakness in the Japanese yen currency is highly attractive to the Bank of Japan and the Japanese economy, due to the fact that Japan has a strong manufacturing economy, which is heavily focused on electronics and automobile exports.
Going back to the 200-day moving average, this is a key benchmark level that traders need to overcome to cement further gains towards the 106.00 area. From a technical perspective the 200-day moving average is used a key metric to define a bullish or bearish trend.
Continued gains above the 200-day moving average, which is currently located around 105.35, will encourage technical traders to buy into the ongoing recovery. Multi-day price stabilization above the 200-day moving average is almost certainly required, given the length of the bear trend in the USDJPY pair.
The next Bank of Japan policy meeting is scheduled for the March 18th, meaning that the USDJPY pair still has plenty of time to benefit from more buy the rumour mania from traders expecting the central bank to act.
According to the ActivTrader Market Sentiment tool some 57% of traders are bearish towards the USDJPY pair. The bearish skew is not significant at this stage; however, we should note that sentiment has flipped.
Last week, some 59% of traders were bullish, which suggests that more traders are selling into the latest recovery. If the negative skew continues to widen, while the price rises, we should expect the upmove to accelerate.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair will form a bullish reversal pattern if the price reaches the 105.80 area. The overall size of the pattern implies a possible upside move towards the 107.00 level.
Traders looking to buy into the current upmove on a pullback may look to enter are either the 105.35 or 104.90 levels. I suspect we could see one more push towards support from the Ichimoku cloud on the four-hour time frame, around 104.90.
Source by ActivTrader.
USDJPY Medium-Term Technical Analysis
The Parabolic SAR indicator on the daily time frame shows that the USDJPY is testing towards key resistance and is close to activating a buy signal. The location of the buy signal on the Parabolic SAR indicator is found around the 105.60 level.
Key upside targets on the daily time frame are located around the 106.30 and 107.00 levels. Traders should note that an overextension towards the 108.00 resistance area is also possible, according to the weekly time frame.
Source by ActivTrader.
