USD/JPY Weakness to Persist as Retail Sentiment Remains Stretched
- USD/JPY Weakness to Persist as Retail Sentiment Remains Stretched.
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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.
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|Index||Last||High||Low||Daily Change (%)||Daily Range (% of ATR)|
|US Dollar Index||11921.07||11933.44||11889.67||0.23||75.89%|
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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--- Written by David Song, Currency Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.