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USD/JPY Risks Further Losses as FX Sentiment Holds Near 2016 Extreme

USD/JPY Risks Further Losses as FX Sentiment Holds Near 2016 Extreme

Talking Points:

- USD/JPY Risks Further Losses as Retail Sentiment Holds Near 2016 Extreme.

- USDOLLAR Mounts Larger Recovery; Durable Goods Orders on Tap.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.


USD/JPY Daily Chart

Chart - Created by David Song

  • USD/JPY may continue to trade within a narrow range ahead of the Federal Reserve Economic Symposium in Jackson Hole, Wyoming as market participants weigh the outlook for monetary policy, but the pair stands at risk for a further decline as it preserves the downward trending channel carried over from the previous month, while the Relative Strength Index (RSI) fails to retain the bullish formation from July.
  • Even though the Bank of Japan (BoJ) keeps the door open to further embark on its easing cycle, positive real interest rates in Japan may continue to boost the appeal of the Yen, and USD/JPY may extend the decline from earlier this year especially if Governor Haruhiko Kuroda may attempt to buy more time at the next interest-rate decision on September 21.
  • A break/close below 99.70 (61.8% expansion) raises the risk of seeing a test of the 2016 low (98.78), with the next downside target coming in around 98.30 (38.2% & 78.6% retracements).
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  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/JPY since July 22, with the ratio hitting a 2016 extreme during the previous month as it climbed to +5.28.
  • The ratio currently sits at +4.29 as 81% of traders are long, with long positions 21.4% higher from the previous week, while open interest stands 28.7% 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 Index11888.8111899.8411871.640.0553.85%
USDOLLAR Daily Chart

Chart - Created by David Song

  • Despite the larger-than-expected decline in U.S. Existing Home Sales, the USDOLLAR pares the sharp decline from earlier this week, with the greenback at risk for a larger recovery as the Relative Strength Index (RSI) threatening the bearish formation carried over from the previous month.
  • With U.S. Durable Goods Orders projected to rebound 3.4% in July, a marked pickup in demand for large-ticket items may trigger a bullish reaction in the greenback as it puts increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate in 2016 even as Fed Funds Futures highlight about a 20% probability for a rate-hike at the next quarterly meeting in September
  • With the USDOLLAR still stuck within a descending channel formation, will keep a close eye on the downside targets, with a break/close below the Fibonacci overlap around 11,822 (23.6% retracement) to 11,843 (38.2% retracement) to open up the next downside target around 11,745 (50% retracement) to 11,759 (23.6% retracement).
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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.