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USD/JPY Risks Larger Recovery as FX Sentiment Narrows from Extreme

USD/JPY Risks Larger Recovery as FX Sentiment Narrows from Extreme

Talking Points:

- USD/JPY Poised for Larger Rebound as Risk Appetite Picks Up, Retail Sentiment Narrows From Extreme.

- USDOLLAR Outlook Mired by Mixed Data, Waning Interest-Rate Expectations.

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USD/JPY Daily Chart

Chart - Created by David Song

  • Longer-term outlook for USD/JPY remains tilted to the downside as it preserves the downward trend from earlier this year, but the dollar-yen may continue to pare the sharp decline from the previous week as risk appetite picks up, with the pair at risk for a larger bound as the Relative Strength Index (RSI) fails to push into oversold territory.
  • Despite speculation for a currency-intervention, Japanese officials may merely make further attempts to talk-down the Yen, while the Bank of Japan (BoJ) may have little choice but to endorse a wait-and-see approach at the next policy meeting in July as Governor Haruhiko Kuroda and Co. continue to monitor the impact of the negative interest rate policy (NIRP).
  • Will keep a close eye on former support zones for new resistance, with the first hurdle coming in around 103.20 (38.2% retracement) to 103.60 (38.2% retracement) followed by 105.10 (50% retracement) to 105.30 (50% retracement).
  • 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 fresh extremes earlier this month as it climbed to +4.00.
  • The ratio currently sits at +3.16 as 76% of traders are long, with short positions 23.3% lower from the previous week, while open interest stands 18.6% 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):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index12029.9412036.6811982.63-0.0471.21%
USDOLLAR Daily Chart

Chart - Created by David Song

  • Despite the limited market reaction to the slew of U.S. data prints, the USDOLLAR bounces back from a low of 11,982, with the greenback at risk for a more meaningful recovery as the ‘flight to quality’ gather pace following the U.K. Referendum; may see a further deterioration in risk appetite as the disintegration in Europe dampens the outlook for global growth.
  • Despite the upward revision in the 1Q Gross Domestic Product (GDP) report, the unexpected slowdown in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, accompanied by the weakness in Personal Consumption may spur another unanimous vote to retain the current policy at the July 27 interest-rate decision as it undermines the central bank’s expectation for a ‘consumer-led’ recovery in 2016.
  • Need a break/close above the Fibonacci overlap around 12,049 (78.6% retracement) to 12,064 (61.8% retracement) to open up the next topside target around 12,170 (78.6% retracement) to 12,176 (78.6% expansion).
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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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.