Rally and hit 125.77 year-to-date high, but negative divergence looms

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  • The Japanese Yen weakened the most at its lowest level of the year, as seen by the rise in USD/JPY to 125.77.
  • US Treasury yields continue to rise during the session as market participants brace for aggressive Fed tightening.
  • USD/JPY Price Prediction: Negative divergence between price action/oscillators could open the door for one leg down.

On Monday, USD/JPY hit a new year-to-date high of 125.77 albeit below the June 2015 high of 125.85 and extended gains for the seventh straight day to to about 1.04% during the North American session. USD/JPY is trading at 125.51 at press time.

High US Treasury yields weigh on the Japanese yen

The risk-averse market sentiment has increased appetite for safe havens. In the case of USD/JPY, rising US Treasury yields keep the Japanese yen under pressure as the Bank of Japan has pledged to take a dovish stance as it aims to hit an inflation target by 2%.

The 10-year US Treasury yield gained six basis points to 2.784%, supporting the greenback. The US dollar index, which measures the value of the dollar against a basket of six rivals, advanced 0.04% and stood at 100.025.

Overnight, USD/JPY opened around 124.00 and surged over 100 pips, breaking through 125.00, followed by breaking the previous year-to-date high at 125.10.

USD/JPY Price Prediction: Technical Outlook

The USD/JPY rally has recorded a new cycle high, but traders should be aware of the Relative Strength Index (RSI). The RSI remains in overbought conditions, but USD/JPY’s jump towards 125.77 failed to push the RSI above 87.29, a level hit at the previous 2022 high since the start of the year at 125.10, which means a a negative divergence between the price action and the oscillators would open the door to losses.

If this scenario plays out, the first USD/JPY support would be the March 28th cycle high at 125.10. A decisive break would expose the April 5 daily high at 123.67, followed by the March 24 daily high at 122.41.

If the pairs continue higher, the first resistance would be the June 2015 cycle highs at 125.86. Once broken, the next resistance would be 126.00, followed by the April 2001 pivot high at 126.85.

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