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USD/JPY Flashes Overbought Signal- Retail Longs Continue to Narrow

USD/JPY Flashes Overbought Signal- Retail Longs Continue to Narrow

David Song, Strategist

Talking Points:

- USD/JPY Flashes Overbought Signal- Retail Longs Continue to Narrow.

- AUD/USD Rebound Vulnerable to Slowing China Inflation.

- USDOLLAR Bullish Formation Remains in Focus Ahead of Fed Rhetoric.

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USD/JPY

USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • USD/JPY appears to be facing a near-term pullback following the gap-open, but the long-term outlook remains constructive as it breaks out of the range carried over from September, while the Relative Strength Index (RSI) flirts with overbought territory for the first time since June.
  • Will keep a close eye on the key data prints coming out of Japan as expectations for a widening Current Account surplus may encourage the Bank of Japan (BoJ) to carry its wait-and-see approach into 2016.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long USD/JPY since June 8, but the ratio remains off of recent extremes as it narrows to 1.09, with 52% of traders long.

AUD/USD

AUD/USD Daily Chart
  • AUD/USD stands at risk of facing a further decline following the failed attempt to push back above former support around 0.7180 (61.8% retracement), while the RSI carves out a bearish pattern.
  • Key developments out of China – Australia’s largest trading partner – may fuel speculation for a Reserve Bank of Australia (RBA) rate cut as the region’s Consumer Price Index (CPI) is expected to slow to an annualized 1.5% from 1.6% in September.
  • Will keep a close eye on the Fibonacci overlap around 0.6950 (161.8% expansion) to 0.6960 (61.8% expansion) along with the September low (0.6906) as there appears to be a resumption of the long-term downward trend.

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Read More:

NFP Digestion Has Traders Waiting to Buy the USD Dip

GBP/USD - No Material Support Until below April Low

GBP/USD 2015 Rebound to Unravel Further as BoE Lags Behind Fed

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12191.5312215.0112183.77-0.1261.78%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the near-term pullback in the Dow Jones-FXCM U.S. Dollar, the breakout following the stronger-than-expected U.S. Non-Farm Payrolls (NFP) report may continue to take shape ahead of the Federal Reserve’s next interest rate decision on December 16 especially as the RSI preserves the bullish momentum from the previous month.
  • With growing speculation for a 2015 liftoff, key speeches by Fed Chair Janet Yellen, Vice-Chair Stanley Fischer, Governor Daniel Tarullo, San Francisco Fed President John Williams, Boston Fed President Eric Rosengren, St. Louis Fed President James Bullard, Richmond Fed President Jeffrey Lacker, Chicago Fed President Charles Evans, New York Fed President William Dudley and Cleveland Fed President Loretta Mesterfor signs for a growing dissent within the committee.
  • With the USDOLLAR breaking out of the wedge/triangle formation from earlier this year, topside targets remain favored with the next region of interest coming in around 12,273 (161.8% expansion) to 12.296 (100% expansion).

--- Written by David Song, Currency Analyst

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

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