Forex trading crowds remain aggressively long the US Dollar (ticker: USDOLLAR) against the Japanese Yen, but a significant shift in sentiment moderates our forecasts for further USDJPY declines. We most often use our retail-based Speculative Sentiment Index as a contrarian indicator; if traders are long, we watch for declines.
We currently see that there are 5.2 traders long USDJPY for every one short, and last week we said that the Japanese Yen was likely to hit fresh peaks versus the US Dollar, Euro, British Pound, and Australian Dollar.
Yet longs have fallen a significant 23 percent since last week. When crowds are net-long but stop buying, we often see short-term corrections higher within the broader downtrend. Our own technical strategist suspects that the USDJPY break above ¥79.30 leaves clear risk of further strength.
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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