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The US dollar has moved back above the 114.00 level against the Japanese yen currency as the rebound in the US dollar index shows few signs of stopping as risk-on sentiment improves.
So fat this week the USDJPY pair has been very volatility, as the derailing of the Build Back Better bill caused a sudden drop towards the 113.00 area on the weekly open. However, the USDJPY pair is back towards the 114.00 level now.
Traders are now focused on the latest Omicron news and the recovery in stocks, as fears over a slowing global economy are delayed. Later today US Q3 GDP and a key speech from President Biden take centre stage.
Earlier today the BoJ meeting Minutes discuss yen weakness and said, “recent yen weakness reflects differential in inflation, monetary policy stance between Japan and other countries must look at various transmission channels in debating weak yen impact on the economy”.
These are interest comments from the Bank of Japan and the USDJPY pair has so far failed to react to the news. I think it’s clear the market is focused on the divergence between the BOJ and FED right now.
Other interest comments from the BoJ minutes were “Japan’s economy is expected to develop more clearly in the first half of next year, but it must be wary of risks such as persistent supply shortages and an offshore recession.”
We should consider Omicron, and that the USDJPY pair did fall during the first lockdown as stocks came off, so if the Nikkei225 did dip lower alongside global stocks then the USDJPY pair could also turn lower. If the situation worsens, then the USDJPY pair remains vulnerable to sudden drops.
According to the ActivTrader Market Sentiment tool shows that some 87% of traders are bearish towards the USDJPY pair, which may hint those further gains are coming in the near-term as bearish sentiment is still extremely high.
The sentiment skew in the USDJPY pair is so high at 87%, and it does also scream of a potential reversal at some point, as bears must be feeling extreme pain at this juncture.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has formed a large head and shoulders pattern, and this is one of the reasons why the USDJPY pair is still cautiously bullish.
According to the overall size of the bearish price pattern the USDJPY pair could be preparing to stage a move towards the 109.00 to 108.40 area over the short-term horizon.
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USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair has broken to the upside above its 20-day MA as upside momentum grows. Gains above the 20-day MA could prompt a test of the yearly high.
A bearish pattern has also formed. However, according to the size of the mentioned pattern an important invalidation above the 115.50 of the patterns could cause a price surge towards the 118.00 area.
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