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01 Feb 2022
1.5 min read

USD/JPY Rate Reverses Course

*OspreyFX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions and Risk Disclosure for more information.

The US dollar and Japanese Yen pair has continued to fall from last week’s highs. This slip occurred despite a short-term rebound in global stocks, and head and shoulder formation is expected if the bullish streak cannot be maintained.

NFP Report Expectations Set The Trend

The recent depreciation of the USD/JPY has set a  broader trend as the Federal Open Market Committee (FOMC) announces a more detailed exit strategy. In addition to further improvements in the employment market, these updates could encourage central banks to lower their balance sheets earlier than planned. All the commotion is set around the upcoming NFP reports which are anticipated to show that the US economy has added 153,000 jobs in January.

Positive moves could support the USD/JPY as the Federal Reserve prepares for policy normalization. However, a weaker NFP report, noting the economic outlook as poor could damage the US Dollar.

A Short-Lived Sentiment Shift?

In the meantime, the divergence between the FOMC and the Bank of Japan (BoJ) may continue to encourage a crowding behavior which only accents the short-lived reversal of sentiment.

According to the IG Client Sentiment report, only 31.39% of traders have a net long USD / JPY and the ratio of short traders to long traders is currently  2.19 to 1. The decline in the net long position is due to the USD / JPY breaking through a series of highs and lows from the monthly lows (113.47). On the other hand, the rise in net short rates has accelerated the decline in retail sentiment.

Against this backdrop, recent price behavior has opened up room for further depreciation of the pair. As the formation of heads and shoulders appears to be imminent, the recent weakness in the exchange rate may be a correction of the trend if the Fed lays out a more comprehensive exit strategy.

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