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The US dollar has been surging higher against the Japanese yen currency due to a break US 10-year bond yields hitting their highest level since July this year, and stocks holding key support.
A clear price correlation exists between the US dollar index and the USDJPY at the moment, and with the US dollar index holding above the 93.75 level, this is likely to lend support to further USDJPY pair.
In terms of high the USDJPY pair can travel depends on what happens about the 112.00 level I strongly suspect. The daily time frame clearly shows that USDJPY pair trading in a large rising price channel.
Currently, the channel is located between the 110.00 and 112.50 levels. We are therefore likely to see either a big rejection at the top of the price channel or a big technical breakout.
A technical rejection from the upper trendline is likely to prompt a sell-off down towards the 110.00 level, while a breakout towards the 112.50 level could cause a USDJPY breakout towards the 115.00 level.
According to the ActivTrader Market Sentiment tool some 61% of traders are bearish towards the USDJPY pair, which may hint those further gains are coming as bearish sentiment is steadily rising.
This could become a bullish constrain signal which is pointing to more USDJPY gains, and we should also consider that while bond yields are breaking out this is further supportive for USDJPY gains.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has invalidated a large head and shoulders pattern. However, it is still unclear if a large head and shoulders pattern is forming.
According to the overall size of the invalidated head and shoulders pattern the USDJPY pair could be preparing to surge by some 300 points in the short-term, taking the USDJPY back towards the 115.00 level.
If a bearish head and shoulders patterns forming, and a big rejection above the 112.00 level happens then watch out for a quick reversal back to neckline support.
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USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY is trading the top of a large rising price channel, with the top coming in around the 112.50 level.
We do have a lot of negative price divergence forming since 110.00, so this could suggest a big technical rejection could take place at the top of channel.
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