Talking Points:
- USD/JPY Retail FX Sentiment Most Extreme Since 2014; RSI Dips Into Oversold Territory.
- USDOLLAR to Face More Fed Rhetoric; Downside Targets Remain in Focus.
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Chart - Created Using FXCM Marketscope 2.0
- USD/JPY stands at risk for a further decline as the pair continues to carve a near-term series of lower highs & lows, while the Relative Strength Index (RSI) breaks down from the bullish formation from February and pushes into oversold territory.
- Despite efforts to talk down the Japanese Yen, the Bank of Japan (BoJ) may have little choice but to stick to its current policy at the April meeting as the central bank continues to gauge the impact of its negative interest-rate policy (NIRP).
- Will continue to watch the downside targets as price & RSI carve out a more bearish pattern, with the next region of interest coming in around 107.20 (23.6% expansion).
- The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long USD/JPY since the BoJ’s January 29 rate-decision, with the ratio highlighting the most extreme reading since 2014 as it currently holds at +3.36, with 77% of traders long.
- The deeper metrics suggests the retail crowd continues to fade the near-term decline in the exchange rate as long positions are 41.7% higher from the previous week, with open interest 19.7% above the monthly average.
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| DJ-FXCM Dollar Index | 11911.63 | 11912.01 | 11857.3 | 0.13 | 88.97% |
Chart - Created Using FXCM Marketscope 2.0
- The USDOLLAR continues to chop within a narrow-range following the Federal Open Market Committee (FOMC) meeting minutes as there appears to be growing dissent within the central bank, but it seems as though the majority remains in no rush to normalize monetary policy even as St. Louis Fed President James Bullard sees a risk of overshooting the 2% inflation target in 2017.
- Will keep a close eye on the fresh rhetoric from Kansas City Fed President Esther George, the lone dissenter on the FOMC, as the 2016 voting-member argues to higher borrowing costs, but comments from New York Fed President William Dudley may further dampen the appeal of the greenback should the permanent voting-member highlight a dovish outlook for monetary policy.
- May see a further consolidation in the USDOLLAR as it remains largely capped around 11,951 (38.2% expansion) to 11,965 (23.6% retracement), with near-term support coming in around 11,826 (61.8% expansion) to 11,843 (38.2% retracement).
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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