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USD/JPY Retail Sentiment Holds Near Extreme Ahead of NFP Report

USD/JPY Retail Sentiment Holds Near Extreme Ahead of NFP Report

David Song,

Talking Points:

- USD/JPY Retail Sentiment Holds Near Extreme Even as BoJ Endorses Wait-and-See Approach.

- USDOLLAR Comes Up Against Former Support Ahead of NFP Report.

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USD/JPY Daily Chart

Chart - Created by David Song

  • Even though USD/JPY holds a narrow range going into the end of the week, the failure to preserve the upward trend from June raises the risk for a further decline in the exchange rate, with the pair at risk of working its way back towards the June low (98.78) as it appears to have carved a lower-high during the previous month.
  • Even though the Bank of Japan (BoJ) keeps the door open to further embark on its easing cycle, recent comments by Deputy Governor Kikuo Iwata suggests the central bank may largely endorse a wait-and-see approach at the next interest-rate decision on September 21 as the board member argues the bank does ‘not have any specific future directions of monetary policy at this moment.’
  • With USD/JPY at risk of carving a lower-low, a break of the June low (98.78) may open up the next downside target around 98.30 (38.2% & 78.6% retracements).
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long USD/JPY since July 22, with the ratio hitting an extreme reading in July as it climbed to +5.28 to mark the highest reading since 2012.
  • The ratio currently sits at +3.83 as 79% of traders are long, with long positions 41.6% higher from the previous week, while open interest stands 15.0% 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 Index11937.5611952.4111898.290.1798.13%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR may mount a larger rebound as U.S. Non-Farm Payrolls (NFP) are projected to increase another 180K in July, but a soft wage growth figure may drag on interest-rate expectations as the Federal Reserve continues to warn ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’
  • Fed officials may come under increased pressure to raise the benchmark interest rate in 2016 especially as the U.S. economy approaches ‘full-employment,’ but the central bank may attempt to buy more time at the next quarterly policy meeting in September as Fed Funds Futures show a 12% probability for a rate-hike next month.
  • The USDOLLAR appears to be testing former-support around 11,951 (38.2% expansion) to 11,965 (23.6% retracement) for new resistance, with a failed attempt to close above the Fibonacci overlap to encourage a bearish outlook for the greenback.
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Read More:

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USD/JPY July Recovery at Risk on Wait-and-See FOMC/BoJ Policy

--- 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.