USDJPY Technical Analysis – Divergence Watch

The US dollar has fallen back towards the 109.50 level against the Japanese yen currency as the greenback remains under pressure after the FOMC policy decision and risk-off tones remain elevated.

Repeated failure above the 110.00 level is threatening to sink the USDJPY into a lower trading range, between the 109.00 and 107.00 levels as the pair struggles around current levels.

While US dollar weakness is weighing on the USDJPY pair more downsides seem the most likely scenario in the short to medium-term. The US dollar index failed to break above 93.00, despite numerous attempts, and now looks to be headed back towards the 92.00 to 91.00 area.

Risk-off tones from Asia this week, and also growing surrounding the COVID-19 Delta variant are lend credence to the idea that the Japanese yen can outperform the greenback in the near-term due to its high safe-haven status.

The divergence in central bank policy between the FED and BOJ will come home to roost if the US central bank remain on path to tapering QE later this year. This could cause the USDJPY to rise over the medium-term as the BOJ as likely to keep QE for the foreseeable future.

According to the ActivTrader Market Sentiment tool some 65% of traders are bullish towards the USDJPY pair, which is a sentiment increase of 10 percent since last week. This is a bearish constrain signal which is pointing to more USDJPY losses.