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USD/JPY Risks Larger Recovery; FX Sentiment Narrows From Extremes

USD/JPY Risks Larger Recovery; FX Sentiment Narrows From Extremes

David Song, Strategist

Talking Points:

- USD/JPY Mounts Larger Recovery; Retail Sentiment Narrows From Recent Extremes.

- USDOLLAR Continues to Search for Support Ahead of Durable Goods Orders Report.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

USD/JPY

USD/JPY Daily Chart

Chart - Created by David Song

  • USD/JPY may mount a larger recovery as it breaks out of the narrow range, with the Relative Strength Index (RSI) moving away from oversold territory, but the pair may continue to carve a longer-term series of lower highs & lower lows as price & the momentum indicator largely preserve the bearish formations carried over from the previous year.
  • The near-term recovery in USD/JPY accompanied by the pickup in risk sentiment may undermine speculation for a currency intervention, but the weakening outlook for global growth may continue to boost the appeal of the Yen especially as Japan returns to its historical role as a net-lender to the world economy.
  • With USD/JPY carving a lower-low in June, may see the rebound ultimately lead to a lower-high, with the first topside region of interest coming in around 106.20 (23.6% retracement) followed by 107.00 (61.8% expansion).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long USD/JPY since the Bank of Japan (BoJ) introduced the negative interest-rate policy (NIRP) on January 29, with the ratio hitting an extreme earlier this month as it climbed towards +4.00.
  • The ratio currently sits at +3.41 as 77% of traders are long, with short positions 23.8% lower from the previous week as open interest stands 16.5% below the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

US Dollar Index

11725.70

11738.37

11689.84

-0.21

84.53%

USD/JPY Risks Larger Recovery; FX Sentiment Narrows From ExtremesUSDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR stands at risk for a further decline as it struggles to find support at the Fibonacci overlap around 11,745 (50% retracement) to 11,759 (23.6% retracement); will continue to favor the downside targets as price & the RSI remain stuck within a bearish formation.
  • In light of the mixed data prints coming out of the U.S. economy, a 0.5% contraction in Durable Goods Orders may dampen the appeal of the greenback and drag on the interest-rate outlook as it undermines Fed expectations for a ‘consumer-led’ recovery.
  • Closing price below the Fibonacci overlap around 11,745 (50% retracement) to 11,759 (23.6% retracement) raises the risk for a more meaningful run at the next downside objective coming in around 11,623 (100% expansion) to 11,646 (61.8% retracement).
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Read More:

S&P 500: Crosses Important Short-term Resistance on Global Rally in Risk

USD/JPY Technical Analysis: A Return To USD/JPY Of 2008-2011?

EUR/USD Timing Compares Favorably with Early 2000s Base

EUR/USD: Breach of Weekly High to Fuel Reversal From Monthly Open

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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