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The US dollar currency has given up its weekly gains against the Japanese yen, following a CPI number that was less strong than feared, which left US dollar bulls somewhat disappointed by the lack of inflationary pressure in the United States economy.
Market participants had been expecting a red hot CPI jobs number, however, the inflationary pressure in the US was only slightly higher than most economists had been fearing, which sent the greenback pretty much crashing across the board.
The USDJPY pair’s recent epic run towards the 111.00 level is now coming into question, especially if weakness takes hold below the 109.00 level. The big risk now is a protracted slump back towards the pair’s key 200-day moving average, around the 106.00 handle.
Goldman Sachs have recently come out with a report stating that the USDJPY pair could slump back towards the 103.00 support region. The bank states that in the medium term the USD/JPY may rise, due to boosts from the vaccine surge in growth and inflation, however, the medium-term outlook is questionable.
However, Goldman Sachs cautioned that “We expect no hikes until 2024, whereas markets price about three hikes before then. In the second half of 2021, when we will be on the other side of the vaccine-led surge in US activity, and when Japan’s own vaccination campaign should be catching up, we expect USD/JPY to turn lower again”
Getting more specific, the investment bank argue that speculative yen shorts have accumulated despite the lack of evidence of Japanese foreign bond purchases accelerating. They also add that the yen is cheap relative to longer-term valuation. Should see the market hopes fade of inflationary pressure inside the US then the early-year market themes are likely to return, in the form of low bond yields and US dollar selling on the foreign exchange market.
According to the ActivTrader Market Sentiment tool some 53% of traders are bearish towards the USDJPY pair right. A big sentiment shift has happened since last week, where some 78 percent of traders were bearish towards the bearish.
We could therefore deduce that retail traders have been covering their shorts and are growing more bullish while the USDJPY pair falters. This could indicate that the bearish trend is about to get stronger.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair will form a large head and shoulders pattern will form if the price drops towards the 108.50 level.
Hence, this is why it is so critical that USDJPY bulls defend the 109.00 support area. Overall, the bearish pattern holds a downside target of 250 points, which could send the pair back towards the 106.00 handle
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USDJPY Medium-Term Technical Analysis
The daily time frame continues to show that bulls have failed to hold the price above a key multi-year trendline, around the 109.85 level.
Another early-week rejection from this area has kept the downside pressure on the USDJPY pair. It is possible that the current upmove has been a fake breakout if bulls are unable to reclaim the advantage above this key trendline.
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