The US dollar is moving lower against the Japanese yen currency as the recovery in the yen gathers pace after the recent stronger-than-expected inflation figures from the island nation.
As the USDJPY pair continues to fall traders are not looking towards central bank guidance from the Bank of Japan, especially about how indeed they are to tackle rising inflation.
The reason that we are currently seeing some strength in the yen against the dollar is due to the fact that inflation is at a 40-year high in Japan and the Bank of Japan may need to rate hike.
Last week’s meeting minutes highlighted that the Fed is not going to keep its foot on the rate hike pedal and may impact a less 50 or 25 basis point hike in December. While the Japanese central bank may need to become more aggressive.
With the USDJPY pair sitting close to the 139.00 level it may take a change in monetary policy for the trend to change for this pair. This will only happen if the price moves under the 136.00 level.
The key takeway this week is that the Japanese central banks probably won’t tolerate inflation over two percent for much longer and may need to hike rates if it continues.
According to the ActivTrader Market Sentiment tool some 57% of traders are bullish towards the USDJPY pair, which strongly hints that more losses are coming.
With retail traders or participants starting to turn bullish again we are probably going to see the USDJPY just heading lower, and especially if the 140.00 level becomes a problem for bulls.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has nearly moved towards the bottom of a smaller head and shoulder pattern between the 142.00 and 138.00 level.
According to the overall size of the bearish pattern we could likely see a 400 point move to the downside if the USDJPY pair starts to settle under the 138.00 level.
USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair has formed a large a large head and shoulders style pattern. These are amongst the most reliable bearish reversal patterns, and it has been invalidated.
According to the size of the price pattern we are likely going to see some type of huge drop soon. I will also state that move under the 136.00 level would be hugely bearish.