USDJPY Breakout Continues as US Rate Hikes Loom Large

USD/JPY Price and Chart Analysis

• US dollar strength is evident against a range of other currencies.
• A 25 basis point is fully priced in the market.
• A big swing in USDJPY retail trade data.

The US dollar is flexing its muscles again ahead of this week’s eagerly anticipated Federal Reserve meeting where chair Jerome Powell is fully expected to announce the first of a series of interest rate hikes. The markets have already priced in between four and five 0.25% rate hikes this year with the outlier being that the Fed may hike rates by 50 basis points at one of its regular meetings to try and slow down runaway inflation. The Fed last raised interest rates over six years ago.

The Japanese Yen on the other hand has not picked up the expected haven bid that it normally demands in times of trouble. Japan imports around 80% of its energy needs and with the price of oil and gas spiking ever higher, this is weighing on the country’s economic health and its attraction for overseas investors.

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The daily chart shows the relentless USDJPY bid over the last few months. The price action higher continues to post higher lows and higher highs, while the classical break above the prior high at 116.34 allowed the pair the space to move even higher. This prior resistance now turns to short-term support.

USD/JPY Daily Price Chart – March 14, 2022

We need to look at a longer-term USD/JPY chart for the next objectives with a series of prior swing lows the next levels of resistance. The weekly chart shows 118.66, and 121.69 followed by 123.57 and finally 125.86. The first target should be achieved soon but the last three may prove tricky to fill over the next few weeks – if at all – with US dollar strength already baked into the market.

USD/JPY Weekly Price Chart – March 14, 2022

Traders have been building net-short positions up over the last week, increasing the short-to-long ratio.

Retail trader data show 26.08% of traders are net-long with the ratio of traders short to long at 2.83 to 1. The number of traders net-long is 22.99% higher than yesterday and 25.82% lower from last week, while the number of traders net-short is 6.12% higher than yesterday and 50.68% higher from last week.

We typically take a contrarian view to 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.

What is your view on the Japanese Yen – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.