The US dollar has been hanging tough against the Japanese yen currency in the face of a major move lower in stocks due to the Ukraine situation, largely due to the fact that the central bank divergence between the FED and BOJ is so pronounced.
Usually, the USDJPY pair would have tumbled significantly, as traders take the classic safe-haven trade, meaning the Yen, gold, and bonds. However, this has not been the case this time around.
The central bank policy divergence between the Federal Reserve and the Bank of Japan is so great that traders have been unwilling to pile back into the yen ahead of the FED meeting.
Another way to look at the USDJPY pair trade is that some market participants simply do not believe that the situation in Ukraine is as bad as some think, so the Yen trade is the last resort.
Far safer with the US dollar and yen diverging to move into gold, rather than risk a sharply reversal in the USDJPY pair to the upside if the FED pull the trigger as expected next month.
Also, this type of bullish price action usually hints at much higher price to come. So if the USDJPY pair wont sink under this type of market pressure, then significant upside could still be to come.
According to the ActivTrader Market Sentiment tool shows that some 71% of traders are bearish towards the USDJPY pair, which is not surprising, as retail are usually on the wrong side of new trends.
Considering that the pair is not going anywhere, 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.
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.