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Talking Points:

  • USD/JPY Technical Strategy: anticipating break and hold above 7-month resistance at 115
  • Monetary policy divergence appears sure bet after Kuroda’s comments and Fed tightening bets
  • Sentiment Highlight: jump in USD/JPY longs cast ST doubt on advancing price

The price of USD/JPY advanced to the highest level since March on further evidence that the monetary policy path between the United States and Japan will diverge in coming years. Over the last week, traders found out that Jerome Powell is set to take over the Federal Reserve in February and that the Federal Reserve is likely to continue normalizing monetary policy through increasing the reference rate in coming years. Things couldn’t be much different in Japan. After a recent political victory for Shinzo Abe (PM of Japan), Kuroda’s position appears secure, and it looks like the BoJ cannot get enough of their easing program, known as QQE (Quantitative and Qualitative Easing.)

On Monday, Bank of Japan Governor Haruhiko Kuroda stressed the need for powerful easing to continue as he stated that the BoJ is still a long way from achieving their 2% inflation goal. The statement reiterates what we heard from the BoJ last week at their monetary policy meeting that left rates unchanged. However, Monday’s message allowed the price of USD/JPY to break above the the July 11 peak of 114.49. The intraday high was 114.73. Traders should keep an eye on the March high of 115.51, and a breakout above this zone would turn focus 116.234 (78.6 of December-September range.)

Traders would do well to hold a longer-term bullish view above the October low of 111.65. The long-term forces favor an extension higher toward the YTD high of 118.60, reached on January 3.

Unlock our Q4 forecast to learn what will drive trends for the Japanese Yen and the US Dollar through year-end!

USD/JPY Hits Highest Level Since March As Kuroda Backs Further Easing

Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

USD/JPY Insight from IG Client Positioning: jump in USD/JPY longs cast ST doubt on advancing price

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

USD/JPY Hits Highest Level Since March As Kuroda Backs Further Easing

USDJPY: Retail trader data shows 49.9% of traders are net-long with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 14.1% higher than yesterday and 3.5% higher from last week, while the number of traders net-short is 14.5% lower than yesterday and 0.6% 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. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse lower despite the fact traders remain net-short (emphasis added.)

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

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