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USD / JPY approaches high annually as RSI pushes back to overbought zone


Japanese Yen Conversation Points

USD / JPY extends the advance from the beginning of the month, as the Federal Reserve warns of a further shift in monetary policy, and the overbought reading in the Relative Strength Index (RSI) is likely to be accompanied by a further appreciation in the exchange rate as the price action seen during the previous month.

USD / JPY approaches high annually as RSI pushes back to overbought zone

USD / JPY appears to be on track to test the annual high (125.11) as it follows the rise in longer-dated U.S. Treasury yields, with recent remarks by the Fed Governor Lael Brainard pushes the RSI back to above 70 if the permanent voting member on the Federal Open Market Committee (FOMC) insists that the central bank “will continue to methodically tighten monetary policy by a series of interest rate hikes and by starting to reduce the balance sheet at a rapid pace once we meet in May.

Brainard further said she expects “tThe balance sheet will shrink significantly faster than in the previous recovery, with significantly larger limits and a much shorter period to phase in the maximum limits compared to 2017–19“and it appears that the FOMC will continue to adjust its exit strategy over the coming months as” tThe Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is justified.

In turn, USD / JPY may continue to show a bullish trend in 2022 amid the divergent paths between the FOMC and Bank of Japan (BoJ)and the tilt in retail sentiment seems poised to continue, as trades have been just a few since late January.

The IG customer sentiment report show 28.91% of traders are currently not-long USD / JPY, with the ratio of traders short to long standing at 2.46 to 1.

The number of traders net long is 6.73% lower than yesterday and 42.05% higher from last week, while the number of traders net short is 0.44% higher than yesterday and 2.10% higher from last week. The jump in net-long interest rates helped ease the pressure behavior, as 23.57% of traders last week were net-long USD / JPY, while the rise in net-short position comes even if the exchange rate prolongs the advance from the beginning of the month.

With that said, USD / JPY may continue to decline in the annual high (125.11) amid rising US yields, and the exchange rate may raises another attempt to test the 2015 high (125.86) as the RSI climbs back into overbought territory.

USD / JPY Rate Daily Chart

Image of USD / JPY rate daily chart

Source: Trading View

  • USD / JPY appears to be on track to test the 2015 high (125.86) as it has risen to a new annual high (125.11). in Marchwith the appreciation in the exchange rate that the Relative Strength Index (RSI) overbought territory for the second time in 2022.
  • A similar scenario emerged in April as the RSI climbed above 70 again, and the overbought reading in the oscillator is likely to be accompanied by a further appreciation in USD / JPY like the price action seen last month.
  • A break above March high (125.11) bring the 2015 high (125.86) on the radar, with a shift above the 126.20 (78.6% expansion) area opening the May 2002 high (129.09).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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