The US dollar has started to consolidate ahead of the Bank of Japan policy decision this week, where the Japanese central bank is set to stand pat on monetary policy in the face of continuing economic weakness.
Much has been made of intervention from the Bank of Japan as the yen falls against the buck, this could be another reason why the USDJPY pair has started to slow its upside gains.
The uptrend in the pair should remain as the rate differentials between the Japanese and United States economy is set to widen as the Fed hikes rate this week and the BoJ sit on their hand.
While officials from the BoJ are monitoring rising inflationary pressures due to higher food prices, they are unlikely to act this week and would need to see much stronger inflation before raising rates.
The slide in the yen to a 24-year low against the dollar could potentially raise political pressure on the Bank to act, the BOJ’s board will likely maintain an easing bias given that the output gap is in negative territory.
Fears over downside risks to the economy could even prompt the bank to tweak guidance for short- and long-term policy interest rates to remain at present or lower levels.
According to the ActivTrader Market Sentiment tool some 75% of traders are bearish towards the USDJPY pair, this strongly hints that retail could be in for more pain this week.
I suspect until we see the retail traders or participants starting to turn bullish again we are probably going to see the USDJPY just heading higher.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has formed a bearish double top price pattern. I think that if the price remains below 145.00 the pattern is valid.
If the pattern is invalidated, with the price moving above the 145.00 level, I suspect the USDJPY pair could start to run towards the 148.00 resistance level at a very minimum.
USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair has invalidated head and shoulders pattern. These are amongst the most reliable bearish reversal patterns, and it has been invalidated.
According to the size of the invalidated price pattern we are likely going to see some type of run towards the 148.00 or 150.00 level.