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USD/JPY FX Sentiment Narrows From 2012 Extreme Post Japan Elections

USD/JPY FX Sentiment Narrows From 2012 Extreme Post Japan Elections

David Song,

Talking Points:

- USD/JPY Retail Sentiment Narrows From 2012 Extreme Following Japan Elections.

- USDOLLAR Confined by Monthly Opening Range Ahead of Fed Rhetoric.

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USD/JPY Daily Chart

Chart - Created by David Song

  • Broader outlook for USD/JPY remains tilted to the downside as price & the Relative Strength Index (RSI) preserve the bearish formations from earlier this year, but the pair stands a risk for a larger rebound as it fails to preserve the recent series of lower highs & lows, while the momentum indicator comes off of oversold territory.
  • With Prime Minister Shinzo Abe’s coalition government gaining a greater majority in the upper-house, reports of a JPY 10T fiscal stimulus package are the rounds as the leader of the ruling party pledges to take ‘bold’ steps to encourage a stronger recovery; may prompt the Bank of Japan (BoJ) to retain its current policy at the July 29 interest-rate decision as Governor Haruhiko Kuroda continues to monitor the impact of the negative-interest rate policy (NIRP).
  • Will look for a larger recover following the failed attempt to test 98.30 (38.2% retracement), with the first topside 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 coming off of the highest reading since 2012 as it climbed above +4.00 during the first full-week of July.
  • The ratio currently sits at +2.15 as 68% of traders are long, with short positions 61.3% higher from the previous week, while open interest stands 9.5% above 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 Index12033.1512046.7211987.820.4080.05%
USDOLLAR Daily Chart

Chart - Created by David Song

  • Despite the better-than-expected U.S. Non-Farm Payrolls (NFP) report, the USDOLLAR may continue to track sideways over the coming days as it fails to break the monthly opening range, with Fed Funds Futures still highlighting limited expectations for a rate-hike in 2016.
  • Will keep a close eye on the fresh batch of central bank rhetoric with Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester, Fed Governor Daniel Tarullo, St. Louis Fed President James Bullard, Minneapolis Fed President Neel Kashkari, Dallas Fed President Robert Kaplan, Philadelphia Fed President Patrick Harker and Atlanta Fed President Dennis Lockharton the wires this week, but more of the same rhetoric may drag on the greenback as Fed officials appear to be in no rush to further normalize monetary policy.
  • Will continue to watch the near-term range as the USDOLLAR remains capped by the Fibonacci overlap around 12,049 (78.6% retracement) to 12,064 (61.8% retracement) with support coming in around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).
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USD/JPY Technical Analysis: The Proverbial Falling Knife

--- 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.