RSI sell signal appears before BoJ rate decision -by Ecork

Talking Points Japanese Yen

The USD/JPY appears to have reversed course before October 1998 high (136.89) Because it extends the gradient beyond Federal Reserve Rate DecisionRecent developments in the Relative Strength Index (RSI) warn of a further decline in the exchange rate as the oscillator pulls back from overbought territory to indicate a written sell signal.

USD/JPY Forecast: RSI sell signal appears ahead of BoJ rate decision

The USD/JPY appears to be tracking weakness in US Treasury yields as it trades to a new weekly low (131.49), and the exchange rate may continue to carve out a series of lower highs and lower lows over the coming days. Federal Reserve Chairman Jerome Powell It tames speculation of a 100 basis point rate hike.

Given whether the BoJ interest rate decision will affect the exchange rate as the central bank is widely expected to maintain quantitative and qualitative easing (QQE) with yield curve control (YCC), more of the same from the governor Haruhiko Kuroda & Co. may support USD/JPY amid divergent monetary policy tracks.

As a result, the Japanese yen may continue to weaken against its US counterpart in 2022 with the Bank of Japan not rushing to switch gears, and the decline from an annual high (135.59) could turn into a correction in the broader trend. The Federal Open Market Committee (FOMC) plans to implement higher interest rates over the coming months.

In turn, the USD/JPY may continue to trade to multi-decade highs as Chairman Powell & Co. shows greater willingness to implement restrictive policy, but the slant in retail sentiment looks set to continue as traders have been selling the pair. for the majority of 2022.

Picture of IG customer confidence in USD/JPY

The IG Customer Sentiment Report It just appears 24.06% of merchants are Currently long net USD/JPY, With the ratio of short to long traders stands up at 3.16 to 1.

The number of short traders is down 28.53% compared to yesterday and 18.84% less than last week, while the number of short traders is down 7.97% compared to yesterday and 6.55% less than last week. The drop in net long position comes with USD/JPY trading to a new weekly low (131.49), while the drop in net short interest did little to ease crowding behavior as 24.37% of traders were long in the pair at the start of the week.

With that said, divergent paths between the FOMC and the BoJ are likely to keep the USD/JPY stable throughout 2022, but the failed attempt to test October 1998 high (136.89) It appears to be triggering a near-term correction in the exchange rate as the decline from the yearly high (135.59) pulls the RSI out of the overbought territory.

USD/JPY daily price chart

USD/JPY daily price chart

source: Trading View

  • Keep in mind that the USD/JPY crossed the 2002 high (135.16) after finding support Before the 50-day simple moving average (129.44) in Maybut the exchange rate appears to have reversed course before October 1998 high (136.89) as such The decline from the annual high (135.59) is withdrawingRelative Strength Index (RSI) outside the overbought zone.
  • A move below 70 in the RSI is likely to be accompanied by a larger pullback in USD/JPY like the behavior seen earlier this year, with a break/close below 130.20 (100% expansion) to 130.60 (23.6% expansion) Opened the 129.40 area (261.8% expansion), which is largely in line with the 50-day simple moving average (129.44).
  • It remains to be seen if USD/JPY will respond to the moving average as it continues to reverse a positive slope, with a breakout/close 129.40 (261.8% expansion) Bring the monthly bottom (128.60) on the radar.
  • However, the decline from Annual High (135.59) It may turn into a correction in the broader trend if it continues to hold above the 50-day simple moving average (129.44), with a move above Fibonacci overlap around 132.20 (78.6% retracement) to 133.20 (38.2% expansion) Return the 135.30 area (50% expansion) to the radar.

— By David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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