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USD/JPY rally pushes RSI into overbought territory

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USD/JPY is recording its longest stretch of advance since April 2011, rising for nine consecutive days, and the exchange rate could continue to rise in the coming days as the Relative Strength Index (RSI) climbs back into overbought territory.

USD/JPY rally pushes RSI into overbought territory

USD/JPY clears the August 1998 high (147.67) as US Treasury yields climb to new annual highs in October, and the exchange rate could continue to make a series of higher highs and lows over the coming days as long as the RSI holds above 70.

As a result, USD/JPY may try to test August 1990 (151.65) as an update to US Consumer Price Index (CPI) points to sustained price rises and the Federal Reserve may stick with its existing approach to tackling inflation as the central bank warns that “the cost of doing too little to reduce inflation is likely to outweigh the cost of doing too much.”

In turn, USD/JPY could continue to track the positive slope of the 50-day SMA (141.66) as evidence of sharp inflation puts pressure on Federal Open Market Committee (FOMC) is running a very tight policy and the central bank could raise another 75 bps. at the next interest rate decision on November 2, as Summary of Economic Forecasts (SEP) reflect a steeper path for US rates.

Until then, the Fed and the Fed diverge Bank of Japan (BoJ) could keep USD/JPY afloat as a leader Haruhiko Kuroda and Co. are still reluctant to shift gears, while the tilt in retail sentiment looks set to persist as traders have been net-short for most of the year.

The IG Client Sentiment Report (IGCS). shows that only 18.55% of traders are currently net long USD/JPY, with a 4.39 to 1 ratio of short to long traders.

The number of net-long traders is 15.15% higher than yesterday and 7.64% lower than last week, while the number of net-short traders is 4.99% higher than yesterday and 10 .71% higher than last week. The decline in net long positions comes as USD/JPY climbs to a fresh 1-year high (149.09), while the increase in percentage net short positions contributed to the glut as 22.67% of traders were net long last week.

That being said, USD/JPY could continue to appreciate in the coming days as it extends a streak of higher highs and lows from last week and the exchange may try to test August 1990 (151.65) as the RSI climbs back into overbought territory .

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  • USD/JPY continues to trade near fresh one-year highs since its August 1998 high of 147.67, with the exchange rate’s nine-day rally pushing Relative Strength Index (RSI) above 70.
  • USD/JPY could continue to break out a series of higher highs and lows while the RSI remains in overbought territory, with a break/close above 150.00 (38.2% retracement) indicating August 1990 (151.65) on the radar .
  • The next area of ​​interest is near the July 1990 high (152.25), but failure to clear 150.00 (38.2% retracement) along with RSI moving below 70 could see USD/JPY pull back below the August high in the short-term 1998 (147.67), returning area 144.10 (100% extension) on radar.

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— Posted by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

https://www.dailyfx.com/news/usd-jpy-rally-pushes-rsi-into-overbought-territory-20221018.html

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