USD/JPY Price Analysis: Break Above 114 Favors Further Upside

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Highlights:

• USD/JPY technical strategy: long with trailing stop at 113
• USD/JPY above December close trendline, persistently weak JPY favors further upside
• BoJ offer shows they are breaking rank with hawkish central banks, JPY downside likely
• IGCS shows USD remains a buy versus Japanese Yen

On Friday, USD/JPY broke above 114 for the first time since May in large part due to persistent JPY weakness that was catapulted by a BoJ offer. The Bank of Japan offered to buy unlimited bonds at a fixed rate to help limit front end bond yields and emphasize their Yield Curve Control (YCC) approach to monetary policy. However, there were no tenders, which could mean we’ll see further JGB flattening in the near term as we see across the world. The takeaway message here is that the BoJ is actively engaged as other central banks (we’re looking at you ECB & BoC) are actively disengaging from their prior dovish stances, which could lead to persistent upside in EUR/JPY and CAD/JPY.

Recommended reading: AUD/JPY may be another JPY pair to approach YTD highs

On the chart, the clearest show of Bullishness is the break above the Trendline drawn of the closing high in December. This development helps to show a potential behavioral change in the market that could align with the three-month high in many sovereign bond yields. The clear resistance worth watching is the 61.8% retracement point of the December to April range at 114.63 followed by the March high of 115.50.

Behind the price, the sentiment signal is painting a rather bright picture that should favor further JPY weakness and USD/JPY upside. Per the CFTC’s Commitment of Traders report, net JPY shorts from institutional speculators are at their highest levels since January showing an anticipation of further weakness. IGCS below helps to echo that view.

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Chart Created by Tyler Yell, CMT

USD/JPY IG Trader Sentiment:US Dollar Remains a Buy versus Japanese Yen

What do retail traders’ buy/sell decisions hint about the JPY trend? Find out here !

USDJPY: Retail trader data shows 46.5% of traders are net-long with the ratio of traders short to long at 1.15 to 1. The percentage of traders net-long is now its lowest since May 04 when USDJPY traded near 112.516. The number of traders net-long is 12.6% lower than yesterday and 20.5% lower from last week, while the number of traders net-short is 0.2% lower than yesterday and 25.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDJPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bullish contrarian trading bias. (Emphasis Mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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