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USD/JPY Weakness to Persist as Retail Sentiment Remains Stretched

USD/JPY Weakness to Persist as Retail Sentiment Remains Stretched

David Song,

Talking Points:

- USD/JPY Weakness to Persist as Retail Sentiment Remains Stretched.

- USDOLLAR Risks Further Losses on Limited FOMC Guidance.

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USD/JPY Daily Chart

Chart - Created by David Song

  • USD/JPY stands at risk for further losses as it fails to preserve the monthly opening range and carves a descending channel, while the Relative Strength Index (RSI) appears to be breaking down from the bullish formation carried over from the previous month; failure to push back above 101.20 (50% expansion) may ultimately lead to fresh monthly lows in the exchange rate.
  • Even though the Bank of Japan (BoJ) keeps the door open to further embark on its easing cycle, positive real-interest rates accompanied by the ongoing improvement in the Balance of Payment (BoP) may continue to drive demand for the Yen amid the weakening outlook for global growth.
  • Need a close below 99.70 (61.8% expansion) to open up the next downside target around 98.30 (38.2% & 78.6% retracements), followed by 97.50 (78.6% expansion).
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/JPY since July 22, with ratio approaching the post-Brexit extreme reading of +5.28 marked on July 8.
  • The ratio currently sits at +4.47 as 82% of traders are long, with long positions 15.4% higher from the previous week, while open interest stands 14.2% 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 Index11921.0711933.4411889.670.2375.89%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR pares the sharp decline from earlier this week as Fed officials argue a September rate-hike remains on the table, but the failure to preserve the monthly opening range raises the risk for a further decline especially as price & the RSI appear to be carving a bearish pattern.
  • With attention turning to the Federal Open Market Committee (FOMC) Minutes, a more upbeat tone may encourage a larger rebound in the greenback as it boosts interest-rate expectations, but more of the same from Chair Janet Yellen and Co. may produce near-term headwinds for the dollar as market participants push out bets for higher borrowing-costs.
  • Will keep a close eye on the downside targets, with another closing price below 11,898 (50% retracement) raising the risk for a move back towards 11,822 (23.6% retracement) to 11,843 (38.2% retracement).
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Read More:

USD/CAD Technical Analysis: Macro Now Favoring a Breakdown?

Gold Prices Wedging into Consolidation Near Resistance

USDOLLAR Short Term Technical Update

S&P 500: Notches New Record High, Short-term Techs in Focus

--- 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.