USD/JPY Price Analysis: Rallies and reaches a YTD high at 125.77, but negative divergence looms

• The Japanese yen weakenest to its lower level in the year, as shown by the USD/JPY rising to 125.77.
• US Treasury yields keep advancing in the session as market players prepare for Fed’s aggressive tightening.
• USD/JPY Price Forecast: Negative divergence between price action/oscillators might open the door for a leg-down.

On Monday, the USD/JPY recorded a new YTD high at 125.77 though short of June’s 2015 125.85 high and extended its gains for the seventh straight day up to some 1.04% in the North American session. The USD/JPY is trading at 125.51 at press time.

Elevated US Treasury yields weigh on the Japanese yen

A risk-off market mood has increased the appetite for safe-haven assets. In the case of the USD/JPY, the rise of US Treasury yields keeps the Japanese yen downward pressured amidst the Bank of Japan’s pledge to an accommodative stance as it aims to achieve a 2% inflation target.

The US 10-year Treasury yield is gaining six basis points up at 2.784%, underpinning the greenback. The US Dollar Index, which measures the buck’s value against a basket of six rivals, advances 0.04%, and sits at 100.025.

Overnight, the USD/JPY opened around 124.00 and surged more than 100-pips, breaking the 125.00 mark, followed by the breach of the previous YTD high at 125.10.

USD/JPY Price Forecast: Technical outlook

The USD/JPY rally recorded a new cycle high, but traders need to be aware of the Relative Strength Index (RSI). The RSI remains in overbought conditions, but the USD/JPY jump towards 125.77 failed to push the RSI above 87.29, a level reached at the previous 2022 YTD high at 125.10, meaning a negative divergence between the price action and oscillators would open the door for losses.

If that scenario plays out, the USD/JPY first support would be March 28 cycle high at 125.10. A decisive break would expose the April 5 daily high at 123.67, followed by March 24 daily high at 122.41.

If the pairs continue upwards, the first resistance would be June 2015 cycle highs at 125.86. Once cleared, the next resistance would be 126.00, followed by April 2001 pivot high at 126.85.