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USD/JPY Retail Positioning Narrows- Outlook Hinges on FOMC/BoJ

USD/JPY Retail Positioning Narrows- Outlook Hinges on FOMC/BoJ

David Song,

Talking Points:

- USD/JPY Outlook Hinges on Fed/BoJ Rate Decisions; Retail Positioning Narrows Ahead of Month-End

- GBP/USD Rebound Vulnerable to Weak U.K. 3Q Gross Domestic Product (GDP) Report.

- USDOLLAR Posts Inside-Day Ahead of U.S. Durable Goods Orders Report.

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USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • With USD/JPY clearings the September high (121.32), the pair may continue to retrace the decline from August especially as the Relative Strength Index breaks out of the bearish formation from back in May; ongoing closes above 120.70 (50% retracement) may favor the approach to ‘buy-dips’ amid the deviating paths for monetary policy.
  • Still seeing speculation for a meaningful announcement from the Bank of Japan (BoJ) as the central bank is scheduled to release its updated economic forecasts, but more of the same from Governor Haruhiko Kuroda and Co. may heighten the appeal of the Japanese Yen as officials soften the verbal intervention on the local currency.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since June 8, but the ratio continues to come off of recent extremes as it narrows to +1.86 as 65% of traders are long, while opening interest is currently 4.6% below its monthly average.


GBP/USD Daily Chart
  • Despite the rebound in GBP/USD, the outlook remains tilted to the downside as the pair appears to be carving a near-term top in October, while the RSI largely preserves the bearish trend from back in May.
  • Even though the U.K. economy is expected to expand another annualized 2.4% in the third-quarter, disappointing developments may spur expectations for a further delay of the Bank of England’s (BoE) normalization cycle as Governor Mark Carney sees inflation holding below 1% until Spring 2016.
  • Lack of momentum to hold above the 1.5500 handle raises the risk for a further decline in the exchange rate, with the next region of interest coming in around 1.5240 (50% retracement) to 1.5250 (100% expansion).

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12012.3412047.9812009.56-0.2975.94%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Dow Jones-FXCM U.S. Dollar looks poised to post an inside-day as it extends the overnight losses following the 11.5% contraction in U.S. New Home Sales; may see the greenback continue to consolidate ahead of the Federal Open Market Committee’s (FOMC) October 28 announcement as the mixed data prints drag on interest rate expectations.
  • With U.S. Durable Goods Orders projected to contract another 1.5% decline in September, developments pointing to weaker consumption may dampen the appeal of the greenback as it drags on the outlook for growth and inflation.
  • Need a break/close above near-term resistance around 12,049 (78.6% retracement) to 12,082 (61.8% expansion) to open up the next topside target around 12,176 (78.6% expansion), but will keep a close eye on the Fibonacci overlap around 11,951 (38.2% expansion) to 11,965 (26.6% retracement) for soft support amid the near-term pullback.

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--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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