USDJPY – In the last several weeks, retail trading crowds have aggressively bought into US Dollar (ticker: USDOLLAR) weakness against the resurgent Japanese Yen. The important shift in sentiment has given us little choice but to call for short-term USDJPY declines, and indeed a current Speculative Sentiment Index ratio of 3.72 to 1 tells us that one-sided sentiment favors further weakness.
Yet we stand by our original calls made through mid-March when we claimed that the USDJPY set an important long-term bottom. Is now a great time to buy into weakness? Our SSI suggests we could see further short-term downside, so better opportunities may arise. Yet a hold of significant congestion levels in the ¥79.60-¥80.00 zone favors longer-term strength. A break lower? We can’t rule out a return near all-time lows near ¥76.
How do we interpret the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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