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The US dollar has recently rallied above the 109.00 level against the Japanese yen currency, marking a recovery of close to 700 points from the worst levels of the year so far, and a major reversal of fortunes for the risk sensitive pair.
Despite the massive run higher in just over eight weeks, the price action surrounding the USDJPY pair suggests that further upside is indeed possible. No signs of upside exhaustion on the technical front are currently present.
In fact, many technical signs are pointing to yet more gains ahead. Technical indicators such as the MACD and RSI on the weekly show significant scope for further upside, while price patterns are predicting an eventual run above the 110.00 level, and possibly much higher.
The prospect of further stimulus from the Bank of Japan is also helping to boost sentiment towards the pair. The upcoming March BoJ meeting may see more QE being announced. This potential policy action or even verbal intervention from the central bank could send a rocket ship under the USDJPY.
Something else to note is that safe haven currencies are being shunned and sold heavily as markets price in a global recovery. Furthermore, the recent breakout in the US dollar index looks to be in the early stages.
If this market theme sticks, then it should spell a period of weakness for the USDJPY pair. This is perhaps why the USDJPY pair has been one of the fastest rising currency pairs, alongside the USDCHF, in recent weeks.
Going forward, dip-buyers may be rewarded if the USDJPY pair staged any significant price pullbacks. The 107.30 to 106.60 technical zone looks to be a perfect spot for bulls to try their luck if such an opportunity presents itself.
According to the ActivTrader Market Sentiment tool some 66% of traders are bearish towards the pair, despite the massive run higher from the start of the year, and last weeks near 250-point push higher.
If bearish sentiment continues to rise while the price rise then I would expect that the USDJPY pair still has more upside cooked in here, and we could see the 110.00 to 111.00 handle challenged before a major pullback occurs.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that USDJPY bulls have activated a large, inverted head and shoulders pattern, following the recent run above the 108.14 level.
According to the size of the bullish price pattern the USDJPY pair could be about to rally towards the 114.00 area if this large bullish price pattern proves correct.
Traders should note that major technical resistance is located around the 110.00 and 111.00 areas, so strong pullbacks and turbulence in the expected run to 114.00 is possible. Key support is found at the 107.30 and 106.50 levels.
Source by ActivTrader.
USDJPY Medium-Term Technical Analysis
The daily time frame continues to show that the 111.00 to 112.00 levels remain the medium-term upside targets for the USDJPY pair. It should be noted that a bullish price pattern will nearly 900 upside potential will form if price reaches this area.
Therefore, we could expect the 118.00 to 120.00 area to be the long-term target. Traders should expect a pullback from the 111.00 area, as the pair completes the structure of a much larger reversal pattern.
Source by ActivTrader.
