USD/JPY Retail Sentiment Shifts, RSI Snaps Bullish Trend Ahead Of FOMC

The recent decline in USD/JPY appears to have stalled ahead of the monthly-low (112.23) as attention turns to the Federal Reserve interest rate decision, but recent developments in the Relative Strength Index (RSI) casts a bearish outlook for the exchange rate as the oscillator extends the bearish formation from October.

Image of daily change for major currencies


Image of daily change for usdjpy rate

USD/JPY appears to be holding the monthly opening-range as the Federal Open Market Committee (FOMC) is widely expected to deliver at 25bp rate-hike, and a hawkish forward-guidance for monetary policy may keep the dollar-yen exchange rate afloat as the central bank appears to be on track to carry the hiking-cycle into 2019.

Image of fed interest rate forecast

Ongoing projections for a longer-run interest rate of 2.75% of 3.00% would imply that the FOMC remains committed in normalizing monetary policy despite the recent remarks from the Trump Administration, but a downward revision in the dot-plot would suggest the central bank is quickly approaching the end of its hiking-cycle as Fed officials show a greater willingness to tolerate above-target inflation over the policy horizon.

With that said, the fresh updates from Chairman Jerome Powell & Co. are likely to impact the near-term outlook for USD/JPY, but there appears to be a shift in retail sentiment as traders fade the recent weakness in the exchange rate.

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The IG Client Sentiment Report shows 55.9% of traders are now net-long USD/JPY compared to 44.1% in late-November, with the ratio of traders long to short at 1.27 to 1. In fact, the percentage of traders net-long is now its highest since October 16 when USD/JPY traded near 112.30. The number of traders net-long is 46.2% higher than yesterday and 34.7% higher from last week, while the number of traders net-short is 31.4% lower than yesterday and 23.0% lower from last week.

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For more in-depth analysis, check out the Q4 Forecast for the Japanese ...

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