USD/JPY Halts Eight Day Decline As US 10 Year Yield Defends April Low


USD/JPY bounces back from a fresh monthly low (107.81) as longer-dated Treasury yields trade within the April range, and the exchange rate may continue to consolidate ahead of the Federal Reserve interest rate decision on April 28 as the central bank is widely expected to retain the current course for monetary policy.

It seems as though the Federal Open Market Committee (FOMC) is on a preset course after unveiling the updated Summary of Economic Projections (SEP) at the March meeting, and the central bank may stay on track “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month” in an effort to achieve above-target inflation.

It remains to be seen if the FOMC will gradually adjust the forward guidance over the coming months as “most participants noted that they viewed the risks to the outlook for inflation as broadly balanced,” but the more of the same from Chairman Jerome Powell and Co. may do little to prop up USD/JPY as the central bank relies on its non-standard tools to achieve its policy targets.

Image of IG Client Sentiment for USD/JPY rate

In turn, the recent flip in retail sentiment may continue to dissipate as the crowding behavior from earlier this year resurfaces, with the IG Client Sentiment report showing 53.13% of traders currently net-long USD/JPY as the ratio of traders long to short stands at 1.13 to 1.

The number of traders net-long is 10.65% higher than yesterday and 25.51% higher from last week, while the number of traders net-short is 0.49% lower than yesterday and 6.64% lower from last week. The jump in net-long position has brought back the crowding behavior from earlier this year as only 47.48% of traders were net-long USD/JPY last week, while the decline in net-short interest could be a function of profit-taking behavior as the exchange rate attempts to halt an eight-day losing streak.

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