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USD/JPY Rate Forecast:  US Dollar Goes Toe To Toe with Strong Yen

USD/JPY Rate Forecast: US Dollar Goes Toe To Toe with Strong Yen

2018-05-08 15:30:00
Tyler Yell, CMT, Currency Strategist
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USD/JPY Rate Forecast Talking Points:

  • The ONE Thing: JPY strength has become a dominant force. Whether you look at the juggernaut Yen through the lens of EUR/JPY or AUD/JPY that continues to slide, it’s fair to say that outside of USD/JPY, JPY strength is obvious. However, given the strength of the US Dollar, it may be difficult to pile up the pips by shorting USD/JPY.
  • USD/JPY Price Forecast: An evening start pattern recently emerged against the 110 barrier and just below the 200-DMA. Such patterns tend to show a reversal and as a result JPY strength may emerge. However, it’s likely best to focus on weaker currencies than the USD if buying JPY.
  • USD/JPY Rate Insight from IG UK: biased higher on jump of net-bearish USD/JPY bias. IG UK Retail Sentimentis utilized as a contrarian technical trading tool, which derives insight from our Traits of Successful Traders research

Currently, the Japanese Yen is the strongest currency in the G8 by long-shot. However, the US Dollar is the second strongest currency, which should cause traders to think twice before trading their view on either the JPY or the US Dollar against the other.

Instead, JPY strength has been on an impressive display against the EUR & AUD. EUR/JPY is often a proxy for global investor sentiment as is AUDJPY and recently EUR/JPY recorded its 10th successive day of losses thanks in large part to the fallout in a handful of key emerging markets.

Despite the weakness, traders may find better levels to sell EUR/JPY as 10 consecutive losses are aggressive and may be prone to short-term short-covering. When looking at AUD/JPY, there was a miss in AU retail sales, which is begging the question whenever will the RBA hike again? The current economic data points seem to favor a perma-hold view for the RBA that could continue to see AUD trade at a discount to strong FX.

May 8 G8FX Strong/Weak Scorecard

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Data source: Bloomberg

The highlight on the spread above is that JPY & USD are the two strongest G8 currencies with EUR & CAD as the weakest. Therefore, either USD or JPY may be best played against the weaker currencies as opposed to each other.

See what we see when looking at the Japanese Yen. Check out our new Q2 Yen Forecast here.

USD/JPY Rate Steadies After Posting Bearish Evening Start Pattern

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Chart Source: Pro Real Time, an IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

USD/JPY failed to push above 110 this week after registering a morning star candlestick formation. However, the popular candlestick pattern failed to show much follow through and now further US Dollar strength may carry the pair higher.

Access one of our most popular articles on reading candlestick charts here

I am looking to Ichimoku levels of the 26-day midpoint or Kijun-Sen (108.32) and the current top-line of the cloud (107.33) as key support before switching from my view that USD will strengthen further vs. the JPY.

The bullish targets are a combination of the 200-DMA (110.27 JPY per USD) and the trendline drawn from the 2017 high that comes in at 111.34.

New to Ichimoku? Click here for a free guide if you’d like to learn more

As noted above, that does not mean we will be without JPY strength in the market, just that the US DOLLAR would be a difficult play.

USD/JPY Insight from IG UK Client Positioning –Drop in Net-Long Positions Favors Upside Bias

Source: IG CLIENT SENTIMENT, data provided by IG

USD/JPY Rate Forecast:  US Dollar Goes Toe To Toe with Strong Yen

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse higher despite the fact traders remain net-long (emphasis mine.)

TO READ MORE:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

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DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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