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Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

By , Quantitative Strategist
22 November 2012 13:32 GMT

FXCM Speculative Sentiment Index (SSI)

www.dailyfx.com

www.fxcm.com

drodriguez@dailyfx.com

By David Rodriguez, Quantitative Strategist,

  • EURUSD - Euro Forecast Remains Bullish
  • GBPUSD - British Pound Targets Key Resistance
  • USDJPY - Japanese Yen Declines in Store
  • USDCHF - Swiss Franc Outlook Bullish
  • USDCAD - Canadian Dollar Forecast to Decline

Looking for more information on the SSI? Watch avideo guide on the Speculative Sentiment Index from our FXCM Expo

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_8.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

Retail forex trading crowds continue to sell the US Dollar (ticker: USDOLLAR) and Japanese Yen against major counterparts. We forecast further USD and JPY declines.

Indeed, we believe that forex market conditions continue to favor selling US Dollar and Japanese Yen strength.

There was a modest pullback in USD-long interest since last week, but as long as the majority of retail traders remain long US Dollars versus the Euro and other counterparts we remain in favor of USD weakness.

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_7.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_6.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

Our Euro forecast versus the US Dollar (ticker: USDOLLAR) remains bullish,, as our proprietary retail forex trading sentiment indicator shows the majority of traders have sold aggressively into EURUSD strength. In fact, traders are at their most aggressively net-short EURUSD since the pair last traded below $1.30 in late October.

A retail sentiment-based forecast for Euro strength likewise lines up with our technical calls for a challenge of fresh highs.

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_5.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

GBPUSD – Retail forex traders have sold aggressively into recent British Pound strength versus the US Dollar (ticker: USDOLLAR), and a contrarian view of crowd sentiment leaves us in favor of further GBPUSD gains. The ratio of long to short positions in the GBPUSD stands at -1.30 as approximately 43% of traders are long. In detail, long positions are 14.8% lower than yesterday and 40.3% below levels seen last week. Short positions are 10.3% higher than yesterday and 30.5% above levels seen last week.

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the GBPUSD may continue higher. Current SSI is further net short than yesterday and from last week. The combination of current sentiment and recent changes gives a further bullish trading bias.

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_4.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

USDJPY – Retail forex trading crowds remain long the US Dollar (ticker: USDOLLAR) versus the Japanese Yen, but a significant shift in positioning suggests that the USDJPY set a significant bottom through September. Total short interest has surged a substantial 120 percent since last week, while retail long interest has fallen by 17 percent through the same stretch. Our proprietary Speculative Sentiment Index shows that there are now 1.2 traders short for every one long USDJPY. This is only the second time this year that we’ve hit net-short levels, and the significant shift serves as further evidence of a major USDJPY reversal.

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_3.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

USDCHF – The ratio of long to short positions in the USDCHF stands at 2.37 as 70% of traders are long. In detail, long positions are 12.9% higher than yesterday and 6.7% above levels seen last week. Short positions are 12.8% lower than yesterday and 18.9% below levels seen last week. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDCHF may continue lower. Current SSI is higher than yesterday and higher from last week. The combination of current sentiment and recent changes gives a further bearish trading bias.

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_2.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

USDCAD – The ratio of long to short positions in the USDCAD stands at 1.31 as approximately 57% of traders are long. Yesterday the ratio was 1.23; 55% of open positions were long. In detail, long positions are 5.3% higher than yesterday and 19.4% above levels seen last week. Short positions are 0.9% lower than yesterday and 24.3% below levels seen last week. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDCAD may continue lower. Current SSI is higher than yesterday and higher from last week. The combination of current sentiment and recent changes gives a further bearish trading bias.

Shift_in_USDJPY_Positioning_Forecast_Further_Gains__body_Picture_1.png, Forex Analysis: Shift in USDJPY Positioning Forecast Further Gains

AUDUSDThe ratio of long to short positions in the AUDUSD stands at -1.03 as approximately 49% of traders are long. In detail, long positions are 1.7% lower than yesterday and 10.4% below levels seen last week. Short positions are 2.7% lower than yesterday and 11.1% below levels seen last week. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the AUDUSD may continue higher. Current SSI is higher than yesterday and higher from last week. The combination of current sentiment and recent changes gives a further mixed trading bias.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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22 November 2012 13:32 GMT