A USD/JPY death cross — a bearish signal that occurs when the 55-day moving average falls below the 200-day moving average — may tempt traders to gamble on a decline.

While this would be a trade against the recent trend, in which the dollar rose strongly following a US interest-rate hike on September 16, there are reasons beyond the technicals why it could prove popular.

Expectations for further US rate hikes have diminished slightly following softer-than-expected inflation data and a drop in oil prices while surprisingly strong Japanese inflation data has raised the probability that the Bank of Japan raises rates further or faster than previously expected. Meanwhile, USD/JPY is trading in an area where some form of intervention to support the yen is widely anticipated. This could limit the yen's downside or trigger a rally, which could significantly enhance profits for those betting on a drop or limit their losses.

Those picking tops — selling into a rising market — may already have had some success, as the rally stalled ahead of the 55-day moving average. That average has since fallen to cap USD/JPY at a lower level and is now set to fall below the 200-day moving average, triggering the sell signal.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)