USD/JPY Eyes July Low With US Yields Under Pressure Ahead Of NFP Report

The rise in net-long interest has fueled the shift in retail sentiment as 45.73% of traders were net-long USD/JPY last week, while the decline in net-short position could be a function of profit-taking behavior as the exchange rate extends the series of lower highs and lows from last week.

With that said, a further decline in USD/JPY may fuel the shift in retail sentiment like the behavior seen earlier this year, and the exchange rate appears to be on track to test the July low (109.06) as US yields come under pressure.

USD/JPY Rate Daily Chart

Image of USD/JPY rate daily chart

Source: Trading View

  • USD/JPY approached pre-pandemic levels as a ‘golden cross’ materialized in March, with a bull flag formation unfolding during the same period as the exchange rate traded to a fresh yearly high (110.97).
  • The Relative Strength Index (RSI) showed a similar dynamic as the indicator climbed above 70 for the first time since February 2020, but the pullback from overbought territory has undermined the upward trend from this year, which briefly pushed USD/JPY below the 50-Day SMA (110.07) for the first time since January.
  • Nevertheless, USD/JPY reversed ahead of the March low (106.37) to largely negate the threat of a head-and shoulders formation, with the exchange rate climbing back above the moving average to trade to a fresh yearly high (111.12) in June.
  • A similar scenario took shape in July as USD/JPY traded to a fresh yearly high (111.66), but the lack of momentum to hold above the 109.40 (50% retracement) to 110.00 (78.6% expansion) region may push the exchange rate towards the Fibonacci overlap around 108.00 (23.6% expansion) to 108.40 (100% expansion), with the next area of interest coming in around 107.20 (61.8% retracement).
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