Never miss a story from David Song

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Song

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Japanese Yen Talking Points

USD/JPY manages to carves a series of higher highs & lows ahead of the Federal Open Market Committee (FOMC) meeting, with the recent rebound boosting retail interest, but the lack of momentum to test the monthly-high (112.14) may lead to range-bound conditions as the Relative Strength Index (RSI) continues to threaten the bullish formation from earlier this year.

Image of daily change for major currencies

Bullish USD/JPY Sequence at Risk Amid Failure to Test Monthly-High

Image of daily change for usdjpy rate

The U. of Michigan Confidence survey has done little to alter the near-term outlook for USD/JPY even though the index climbs to 97.8 from 93.8 in February as attention turns to the Federal Reserve interest rate decision, with the central bank slated to update the Summary of Economic Projections (SEP).

Even though the FOMC is widely expected to keep the benchmark interest rate in its current threshold of 2.25% to 2.50%, the central bank may continue to alter the forward-guidance for monetary policy ‘in light of global economic and financial developments and muted inflation pressures.’

Image of fed balance sheet

Recent comments from Fed officials suggest the central bank is on track to abandon the hiking-cycle as officials warn ‘that some risks to the downside had increased, including the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe,’ and it remains to be seen if Chairman Jerome Powell & Co. will adjust the longer-run interest rate forecast amid budding fears of a policy error.

With that said, the FOMC may also reveal plans to wind down the $50/month in quantitative tightening (QT) as mixed data prints coming out of the U.S. economy stoke fears of a looming recession, and the Fed rate decision may shake up the recent shift in market participation as retail sentiment recovers from an extreme reading.

Image of IG client sentiment for usdjpy rate

The IG Client Sentiment Report shows 47.4% of traders are net-long USD/JPY, with the ratio of traders short to long at 1.11 to 1. In fact, traders have remained net-short since February 27 when USD/JPY traded near 110.60, with the ratio slipping to an extreme reading earlier this month. The IG Client Sentiment index has recovered ahead of the FOMC meeting, with the number of traders net-long 1.7% lower than yesterday and 10.0% higher from last week, while the number of traders net-short is 3.3% lower than yesterday and 7.4% higher from last week.

A flip in the IG Client Sentiment index driven by a further pickup in net-long interest may warn of a broader shift in USD/JPY behavior, with the exchange rate at risk of threatening upward trending channel from earlier this year especially as the Relative Strength Index (RSI) highlights a similar dynamic. 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 constructive as both price and the RSI continue to track the upward trends from earlier this year, but the correction following the currency market flash-crash appears to be sputtering amid the lack of momentum to test the Fibonacci overlap around 112.40 (61.8% retracement) to 113.00 (38.2% expansion).
  • In turn, failure to hold above the 111.10 (61.8% expansion) to 111.80 (23.6% expansion) region raises the risk for a move back towards 109.40 (50% retracement) to 110.00 (78.6% expansion), which largely lines up with the 50-Day SMA (110.15).
  • Next downside region of interest comes in around 108.30 (61.8% retracement) to 108.40 (100% expansion), but failure to extend the series of lower highs & lows from the previous week may generate range-bound conditions over the coming days.

For more in-depth analysis, check out the Q1 2019 Forecast for the Japanese Yen

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 2019.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.