Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
USD/JPY Retail Sentiment Shifts, RSI Snaps Bullish Trend Ahead of FOMC

USD/JPY Retail Sentiment Shifts, RSI Snaps Bullish Trend Ahead of FOMC

What's on this page

Japanese Yen Talking Points

The recent decline in USD/JPY appears to have stalled ahead of the monthly-low (112.23) as attention turns to the Federal Reserve interest rate decision, but fresh developments in the Relative Strength Index (RSI) casts a bearish outlook for the exchange rate as the oscillator extends the bearish formation from October.

Image of daily change for major currencies

USD/JPY Retail Sentiment Shifts, RSI Snaps Bullish Trend Ahead of FOMC

Image of daily change for usdjpy rate

USD/JPY appears to be holding the monthly opening-range as the Federal Open Market Committee (FOMC) is widely expected to deliver at 25bp rate-hike, and a hawkish forward-guidance for monetary policy may keep the dollar-yen exchange rate afloat as the central bank appears to be on track to carry the hiking-cycle into 2019.

Image of fed interest rate forecast

Ongoing projections for a longer-run interest rate of 2.75% of 3.00% would imply that the FOMC remains committed in normalizing monetary policy despite the recent remarks from the Trump Administration, but a downward revision in the dot-plot would suggest the central bank is quickly approaching the end of its hiking-cycle as Fed officials show a greater willingness to tolerate above-target inflation over the policy horizon.

With that said, the fresh updates from Chairman Jerome Powell & Co. are likely to impact the near-term outlook for USD/JPY, but there appears to be a shift in retail sentiment as traders fade the recent weakness in the exchange rate.

Please add a description for the image.

The IG Client Sentiment Report shows 55.9% of traders are now net-long USD/JPY compared to 44.1% in late-November, with the ratio of traders long to short at 1.27 to 1. In fact, the percentage of traders net-long is now its highest since October 16 when USD/JPY traded near 112.30. The number of traders net-long is 46.2% higher than yesterday and 34.7% higher from last week, while the number of traders net-short is 31.4% lower than yesterday and 23.0% lower from last week.

The drop in net-short position points to profit-taking behavior ahead of the Fed rate decision, but the sharp rise in net-long interest suggests retail traders are betting on the November range to hold over the days ahead, with the shift in the IG sentiment index offering a contrarian view to crowd sentiment especially as USD/JPY snaps the upward trend from earlier this year.

Moreover, the series of failed attempt totest the 2018-high (114.55) warns of a larger pullback, with the Relative Strength Index (RSI) starting to flash a bearish signal as it threatens trendline support. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

USD/JPY Daily Chart

Image of usdjpy daily chart
  • Keep in mind, the near-term outlook for USD/JPY remains capped by the 113.80 (23.6% expansion) to 114.30 (23.6% retracement) region, with the lack of momentum to test the 2018-high (114.55) raising the risk for a further decline in the exchange rate as it carves a series of lower highs & lows.
  • In turn, the 112.40 (61.8% retracement) to 113.00 (38.2% expansion) region sits on the radar, with a close below the stated region raising the risk for a move towards 111.10 (61.8% expansion) to 111.80 (23.6% expansion), which lines up with the October-low (111.38).

For more in-depth analysis, check out the Q4 Forecast for the Japanese Yen

Image of DailyFX economic calendar

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES