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The US dollar is trading above the 116.00 level against the Japanese yen currency ahead of the United States Consumer Price Index report and the Bank of Japan policy meeting.
One of the reasons why the USDJPY pair is surging is due to strong demand for the US dollar in times of economic uncertainty, and the strong greenback demand as emerging market debt rises.
Another potential reason why the USDJPY pair is surging is sentiment. A massive sentiment skew is currently underway, with a huge majority of retail participants current short the USDJPY pair.
According to the ActivTrader Market Sentiment tool shows that some 88% of traders are bearish towards the USDJPY pair. This is a near 20% weekly increase, and it should be noted that retail is usually on the wrong side of new trends.
Considering that the pair is rising above the 116.00 level and the breakout in the buck, and the massive sentiment bias, I think we could probably see more upside ahead in the USDJPY pair towards the 117.00 area.
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.
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 continuing to see 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 shoulder. Personally, I favour a pattern invalidation here and a push towards 117.00.
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USDJPY Medium-Term Technical Analysis
The weekly time frame is showing that the USDJPY pair is currently trapped inside a rising price channel and is currently trading right inside the middle of the typically bearish pattern.
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.
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