USDJPY – Retail forex traders have sold aggressively into US Dollar gains versus the Japanese Yen, but early signs of a turn in sentiment underline risks of a larger USDJPY correction.
Trade Implications – JPY Pairs: Our retail sentiment-based Momentum2strategy has done well buying into Japanese Yen declines (USDJPY, EURJPY, GBPJPY gains), but the same strategy has most recently bought the JPY on early signs of a potential bounce. Indeed, we highlight three key factors that may favor a USDJPY pullback through near-term trading.
Major tops and bottoms are only clear in hindsight, and it is especially difficult to call reversals on such one-sided currency trends. Yet we can’t ignore these signs of a potentially significant shift in JPY exchange rates.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com