USD/JPY Forecast – Setting Up for the Next Leg Higher?

[MongiIG]

USD/JPY PRICE AND CHART ANALYSIS

• The US dollar starts the week in a positive fashion.
• The Japanese Yen is coming under renewed pressure.
• Retail traders are net-short USD/JPY but the outlook is mixed.

The US dollar multi-month rally continues in early trade with the greenback now touching levels last seen in December 2002. A strong US rates complex – the 10-year UST benchmark currently offers an 11-year high yield of 3.18% - and confirmation from the Fed that they are going to tackle inflation hard continues to boost the value of the US dollar. This week there is a clutch of Federal Reserve speakers who are likely to reinforce the hawkish Fed narrative, further underpinning the US dollar rally. The greenback remains, as it has for months, a buy on a reasonable market dip.

US DOLLAR BASKET (DXY) MONTHLY PRICE CHART – MAY 9, 2022

 

After breaking above 125.00, USD/JPY quickly settled around the 130.00 level as traders pushed to see if the Bank of Japan (BoJ) had a new ‘line in the sand’ for the Japanese Yen. Recent BoJ policy minutes reveal that while inflation is rising, the central bank’s 2% target is unlikely to come under sustained pressure and that ongoing monetary easing remains necessary to boost the economy. This leaves the Yen at risk of weakening further and suggests that USD/JPY will continue to move higher. Last month’s confirmed break above the 125 zone, a level that acted as strong resistance for nearly 20-years, leaves USD/JPY looking at a re-test of the early 2002 swing high at 135.19. Ongoing US dollar strength and Japanese Yen weakness may a re-test likely in the short-term.

USD/JPY MONTHLY PRICE CHART – MAY 9, 2022

Retail trader data show that 30.32% of traders are net-long with the ratio of traders short to long at 2.30 to 1. The number of traders net-long is 9.62% higher than yesterday and 9.50% lower from last week, while the number of traders net-short is 1.48% lower than yesterday and 3.68% higher from last week.

We typically take a contrarian view of 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.

 

May 9, 2022 | DailyFX
Nick Cawley, Strategist