USD/JPY Price Analysis: USDJPY Rockets Higher after Vaccine Optimism

USD/JPY Analysis:

• Optimism surrounding Pfizer’s Covid vaccine leads to haven outflows
• USD/JPY shoots above 105.00 and looking to test descending trendline
• BoJ ready to intervene in the FX market if necessary to support the economy
• IGCS showing extreme long sentiment (contrarian indicator)

The Catalyst Sparking an Outflow in USD/JPY Haven

Safe-haven linked assets like USD/JPY and Gold experienced significant sell-offs shortly after Pfizer CEO Albert Bourla released a statement confirming their new COVID vaccine was 90% effective in in preventing Covid-19 infections in ongoing phase 3 trials.

US equity futures traded significantly higher during the US pre-market as gold and the Japanese Yen experienced sharp selling pressure in what seemed like an immediate shift in sentiment in favor of risky assets.

USD/JPY Price Spike and Key Levels

The daily chart below puts the massive move into perspective as new bullish momentum thrust price above both the 76.4% Fib level (drawn from the March low to March high) and the significant 105.00 level with little resistance.

USD/JPY Daily Chart with Key Fib Levels

Chart prepared by Richard Snow, IG

Taking a closer look at the 4 hour chart, price has broken above the descending trendline where there is significant resistance around the 105.60 – 105.80 level. A close above the descending trendline may bring this level into play with the next level of resistance coming in at 106.10.

A close below the descending trendline may be suggestive of a continuation of the longer-term downtrend, whereby a lower move could bring the significant 105.00 level back into play. Continued bearish momentum from there may open the door to 104.00 and 103.20 as levels of support.

USD/JPY 4 Hour Chart with Key Levels

Chart prepared by Richard Snow, IG

BoJ Announces the Possibility of FX Intervention

Prime Minister, Yoshihide Suga warned that the appreciation in the Yen could prompt the Bank of Japan to intervene in the FX marker to reduce the negative impact of sustained currency strength on Japan’s economic recovery.

In fact, the Prime Minister stressed before a parliamentary committee that a stable exchange rate is extremely important.

Learn Why Central Bank’s Possess Great Market Moving Ability – read our article on the Impact of Central Banks on the FX Market

That being said, with the BoJ opting to keep its monetary policy settings unchanged at its recent meeting, the extent of intervention may be limited to verbal jawboning and considering today’s move, may not be needed for some time, if at all.

USD/JPYSentiment Presents a Challenges to Recent Bullish Move

• USD/JPY Retail client sentiment data shows 80.58% of traders are net-long with the ratio of traders long to short at 4.15 to 1.
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests that the recent rise in USD/JPY may be short-lived.

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• The number of traders net-long is 24.05% higher than yesterday and 39.65% higher from last week, while the number of traders net-short is 9.43% higher than yesterday and 14.50% lower from last week.
• Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bearish contrarian trading view.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX