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Market alert: USD/JPY rate rally to persist as RSI holds in overbought territory


ArvinIG

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USD/JPY rallies to a fresh yearly high as it extends the series of higher highs and lows from earlier this week.

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Source: Bloomberg
 
 

USD/JPY extends the advance from the start of the month despite the recent pullback in US Treasury yields, and the bullish momentum underlying the exchange rate looks poised to persist as long as the RSI holds above 70.

As a result, USD/JPY may attempt to test the August 1998 high (147.67) as Federal Reserve Vice-Chair Lael Brainard warns that “monetary policy will need to be restrictive for some time,” and expectations for higher US interest rates may keep the exchange rate afloat ahead as the central bank appears to be on track to retain its current approach in combating inflation.

In turn, USD/JPY may continue to track the positive slope in the 50-Day SMA (136.67) amid the diverging paths between the FOMC and Bank of Japan (BoJ), and it remains to be seen if the Fed will adjust the forward guidance at its next interest rate decision on September 21 as Chairman Jerome Powell and Co. are slated to update the Summary of Economic Projections (SEP).

Until then, USD/JPY may continue to appreciate amid speculation for another 75bp Fed rate hike, while the tilt in retail sentiment looks poised to persist as traders have been net-short the pair for most of 2022.

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Source: DailyFX

The IG Client Sentiment report shows only 21.58% of traders are net-long USD/JPY, with the ratio of traders short to long standing at 3.63 to 1.

The number of traders net-long is 6.78% higher than yesterday and 0.85% lower from last week, while the number of traders net-short is 1.10% higher than yesterday and 14.73% higher from last week. The decline in net-long position comes as USD/JPY trades to a fresh yearly high (144.99), while the rise in net-short interest has fueled the crowding behavior as 24.40% of traders were net-long the pair last week.

With that said, USD/JPY may attempt to test the August 1998 high (147.67) as it extends the series of higher highs and lows from earlier this week, and the overbought reading in the Relative Strength Index (RSI) is likely to be accompanied by a further advance in the exchange rate like the price action from earlier this year.

USD/JPY rate daily chart

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Source: TradingView

David Song
 
| 
Analyst, DailyFX, New York City
08 September 2022 

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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