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Yellen Triggers Near-Term USD/JPY Breakout- Retail Sentiment Follows

Yellen Triggers Near-Term USD/JPY Breakout- Retail Sentiment Follows

Talking Points:

- USD/JPY Retail Sentiment Pulls Back From 2016 Extreme as Yellen Triggers Near-Term Breakout.

- USDOLLAR Extends Advance Ahead of More Fed Rhetoric, NFP Report.

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USD/JPY Daily Chart

Chart - Created by David Song

  • USD/JPY looks poised for a larger recoveryfollowing the Fed’s Economic Symposium in Jackson Hole, Wyoming as it appears to have a made a failed run at the 2016-low (98.78), with the pair breaking out of the bearish formation carried over from the previous month, but the broader outlook remains tilted to the downside as price retains the downward trend from earlier this year.
  • Even though Bank of Japan (BoJ) Governor Haruhiko Kuroda continues to endorse a dovish outlook for monetary policy and argues that ‘there is ample space for additional easing,’ the central bank may ultimately stick to the sidelines at the next interest-rate decision on September 21 especially as there appears to be a growing rift within the central bank.
  • 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).
  • 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 has narrowed from recent extremes as it currently sits at +2.84, with 74% of traders still long, while short positions have jumped 47.2% from the previous week.

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 Index11975.7611988.6411958.60.1757.47%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR may continue to pare the decline from the July high (12,057) as market participants boosts bets for a 2016 Fed rate-hike, while the Relative Strength Index (RSI) breaks out of the bearish formation carried over from the previous month; may see a growing dissent within the Federal Open Market Committee (FOMC) especially as the fresh developments coming out of the U.S. economy highlight sticky price growth.
  • With Fed Funds Futures now showing a 60% probability for at least a 25bp rate-hike by December, positive data prints may put increased pressure on the Fed to further normalize monetary policy sooner rather than later as Chair Janet Yellen argues ‘the case for an increase in the federal funds rate has strengthened in recent months;’ will keep a close eye on the headlines as Vice Chair Stanley Fischer, Boston Fed President Eric Rosengren, Minneapolis Fed President Neel Kashkari, Cleveland Fed Loretta Mester and Richmond Fed President Jeffrey Lacker are scheduled to speak over the coming days.
  • Need a break/close above 11,989 (50% retracement) to favor a further advance in the USDOLLAR, with 12,049 (78.6% retracement) to 12,064 (61.8% retracement).
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Read More:

S&P 500: Yellen Sparks Volatility, Market Starts Week at Pivotal Area

USD/JPY Technical Analysis: Implied Vol Shows Trader’s Nerves

EUR/JPY Technical Analysis: Sticking to the Range

EURUSD: Waiting for the Dip & Rip- Key Resistance at 1.1400

--- 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.