The US dollar pair has smashed past the 120.00 level against the Japanese yen currency this morning as the non-stop bid tone in the USDJPY shows few signs of stopping.
It is apparent that the USDJPY pair is being buoyed by higher US bond yields, which thoroughly suggest that US inflation is going to cause the Fed to become more aggressive in hiking rates.
This is obviously causing a flight into the buck, and it means that traders and the market expects that monetary policy of the Bank of Japan, and the Federal Reserve are going to continue to diverge.
Another potential reason why the USDJPY pair is surging is sentiment. A massive sentiment skew is currently underway, with a large majority of retail participants current caught short the USDJPY pair.
I would add that massive amount of negative divergence has formed, so we could expect to see some type of blow-off top in the USDJPY pair once it finally hits meaningful upside resistance.
According to the ActivTrader Market Sentiment tool shows that some 95% of traders are bearish towards the USDJPY pair. This is a near 2% weekly increase, and it should be noted that retail have been on the wrong side of this trade for over 500 points now.
Considering that the pair is rising above the 120.00 level and the breakout in the buck, and the massive sentiment bias, I think we could probably see more upside ahead in the USDJPY pair towards the 122.00 area.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has formed massive amount of negative MACD price divergence in two key areas on the price chart.
The USDJPY pair currently has negative MACD price divergence extending down towards the 117.50 area. Traders need to be careful if this divergence starts to reverse, because it could an epic reversal.
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USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair has invalidated a huge head and shoulders pattern, and also staged a massive trendline breakout after clearing the 118.00 level.
It is also noteworthy that the Alligator Williams indicator is issuing a buy signal. This indicator is famous for finding meaningful price trends. Bears need to be careful while the buy signal is on.
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