Japanese Yen Forecast: USD/JPY, AUD/JPY Still Attract Short Bets. More Gains Ahead?

Japanese Yen, USD/JPY, AUD/JPY, Technical Analysis, Retail Trader Positioning – Sentiment Weekly

• Retail traders can’t get enough of buying up Japanese Yen
• This is despite persistent gains in USD/JPY and AUD/JPY
• Does this spell more trouble ahead for the currency?

For the most part, the Japanese Yen just can’t get enough of a break from the selling onslaught that has weakened the currency to levels last seen in the 1990s. This is despite government intervention to try and stem a selloff in JPY. Fundamentally speaking, a dovish Bank of Japan compared to more hawkish central banks around the world is largely to blame.

Despite the Yen’s onslaught, retail traders have time and time again continued to buy up the currency. This can be seen by looking at IG Client Sentiment (IGCS). The latter tends to function as a contrarian indicator. With that in mind, if retail traders continue increasing their bullish exposure in JPY, could that speak to more trouble ahead for the currency?

USD/JPY Sentiment Outlook - Mixed

The IGCS gauge shows that only about 19 percent of retail traders are net-long USD/JPY. This means that for long investor, over 4 are short. Since most traders are net-short, this hints that prices may continue rising. However, upside exposure increased by 12.45% compared to yesterday while falling by 6.2% compared to a week ago. Overall, recent changes in exposure are offering a mixed outlook.

Daily Chart

On the daily chart, USD/JPY has confirmed a breakout above the 1998 high, rising to levels last seen in the early 1990s. The uptrend has brought the currency pair to the 61.8% Fibonacci extension level at 149.93. A confirmatory breakout above this price could open the door to an uptrend extension, placing the focus on the 78.6% level at 152.54. Otherwise, a turn lower could see the 20-day Simple Moving Average perhaps holding as support, reinstating the upside focus.

Chart Created in Trading View

AUD/JPY Sentiment Outlook - Bullish

The IGCS gauge reveals that about 39% of retail traders are net-long AUD/JPY. Since most traders are net-short, this hints that prices may continue rising. This is as downside exposure increased by 7.21% and 10.95% compared to yesterday and last week, respectively. The combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias.

Daily Chart

AUD/JPY has confirmed a breakout above the near-term falling trendline from September, opening the door to perhaps extending gains back to the September high. Still, key resistance is a combination of the 50-day SMA and the 38.2% Fibonacci retracement at 94.342. Confirming a push higher above these two points likely opens the door to uptrend resumption. Otherwise, key support is the 90.526 – 91.425 range.

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from October 19th Report

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or@ddubrovskyFXon Twitter