USD/JPY Price Action:
- USD/JPY retraces from critical resistance
- Risk Sentiment weighs on safe-haven currencies
- RSI divergence indicates bullish momentum may be losing steam
USD/JPY continues to trade within a key confluent zone, formed by Fibonacci levels from historical moves of prominence. Despite recent economic data indicating that the US economy is currently experiencing a robust recovery, with both Non-Farm Payrolls (NFP) and ISM Services PMI surpassing expectations, longer-dated Treasury Yields have taken a step back, pushing the greenback lower.
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Meanwhile, safe-haven currencies remain at the mercy of risk-sentiment, and the technicals may help to decipher near-term price action as the battle between bulls and bears persists.
USD/JPY Technical Analysis
After depreciating for most of 2020, the US Dollar has managed to recover most of its losses against its major counterparts, with USD bulls eager to return to pre-pandemic levels. Although a break above both the 20-period Moving Average and the falling wedge formation indicated an acceleration of momentum, the key psychological level of 111.00 continues to hold the bulls at bay.
USD/JPY Weekly Chart
Chart prepared by Tammy Da Costa, IG
While price action continues to trade within a well-defined range, a break above the key psychological level of 111.00 could see USD/JPY continuing along an upward trajectory, with the next level of resistance coming in at 112.38, the 50% retracement level of the 2015-2016 move.
USD/JPY Daily Chart
Chart prepared by Tammy Da Costa, IG
Meanwhile, RSI divergence on the daily chart indicates that the upward momentum could be losing steam as bears exert pressure, driving prices towards 109.170, the 38.2% retracement level of the 2015-2016 move, which is currently providing support for USD/JPY. If the Dollar Yen exchange rate fall below the 20-period MA and Fibonacci support, the next support level resides at 108.739, the 50% Fibonacci retracement of the 2016 move.
USD/JPY Client Sentiment
USD/JPY: Retail trader data shows 39.51% of traders are net-long with the ratio of traders short to long at 1.53 to 1. The number of traders net-long is 3.42% lower than yesterday and 13.56% lower from last week, while the number of traders net-short is 7.53% lower than yesterday and 1.43% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.
Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.
| Change in | Longs | Shorts | OI |
| Daily | -9% | -3% | -4% |
| Weekly | -15% | 5% | 0% |
--- Written by Tammy Da Costa, Market Writer for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707
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