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USD/JPY Price Outlook: USDJPY Vulnerable to Pullback amid Bullish Surge

USD/JPY Price Outlook: USDJPY Vulnerable to Pullback amid Bullish Surge

Richard Snow, Analyst

USD/JPY Analysis:

  • USD/JPY prolongs rise after a strong showing in USD into early trading on Monday
  • After such a drastic move, USD/JPY may see ST pullback: over-bought (RSI)
  • Client Sentiment supports a continuation of the bullish theme
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US Dollar and US 10 Year Treasury Yields Rise

The US dollar has strengthened against many of its peers in the wake of the elevated 10-year US treasury yield, which hit 1.6% during early trade on Monday. The relatively high yield remains at similar levels which may be the result of the recently approved $1.9 trillion stimulus package through the US Senate.

The sell-off in bonds could potentially be interpreted as an indication of optimism around an expected economic recovery, as investors and institutions tend to become more risk-seeking in an attempt to maximize returns.

DXY vs US 10 Year Bond Yields

Chart prepared by Richard Snow. Source: Tradingview

USD/JPY Risk Events in the Week Ahead

Major risk events for the USD/JPY pair include Japanese Q4 GDP on Tuesday and US inflation data for February.

Econ calendar

For all market-moving data releases and events see the DailyFX Economic Calendar

Key Technical Levels for USD/JPY

The recent break above the resistance (topside of the bullish channel) adds to the bullish posture of the market since the January swing low. The recent move however has thrown the relative strength index (RSI) well into overbought territory which may result in a short term pullback towards trendline support (previous resistance) around the 108.00 or even 107.80 level. However, this may serve as a launchpad for bulls to enter the market as it may offer a better entry level.

It must also be noted that Fed Chair Jerome Powell, did little to address the surging bond yields which may support the current bullish move even higher. Market participants will however monitor the press conference following the Federal Open Market Committee (FOMC) meeting next week regarding the official position of the Fed on current bond yields, recent dollar strength and inflation expectations. The nearest levels of resistance stand at 109.30 and 109.85.

USD/JPY Daily Chart

USD/JPY daily chart

Chart prepared by Richard Snow, IG

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IG Client Sentiment Points to Continued Bullish Momentum

Sentiment
  • USD/JPY: Retail trader data shows 40.45% of traders are net-long with the ratio of traders short to long at 1.47 to 1.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.
USD/JPY Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 20% -11% 3%
Weekly 13% -9% 1%
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  • The number of traders net-long is 11.81% higher than yesterday and 9.80% lower from last week, while the number of traders net-short is 12.72% higher than yesterday and 39.82% higher from last week.
  • Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bullish contrarian trading bias.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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