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Persistent Net-Long USD/JPY Positioning Instills Bearish Outlook

Persistent Net-Long USD/JPY Positioning Instills Bearish Outlook

David Song,

Talking Points:

- Retail FX Sentiment Instills Bearish Outlook for USD/JPY as Positioning Gets Stretched Again.

- USDOLLAR Range to Persist Ahead of Key U.S. Data as Brainard Tames Bets for September-Hike.

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USD/JPY Daily Chart

Chart - Created by David Song

  • USD/JPY may make a more meaningful run at the monthly opening range as it appears to be preserving the upward trend carried over from August, but the recent series of lower highs & lows accompanied by the bearish trigger in the Relative Strength Index (RSI) undermines the rebound from 99.53 (August low) especially as the broader outlook for the exchange rate remains tilted to the downside.
  • Even though the Bank of Japan (BoJ) remains under pressure to further embark on its easing cycle, with market participants looking for more non-standard measures in 2016, Governor Haruhiko Kuroda and Co. may largely endorse a wait-and-see approach at the September 21 interest-rate decision as central bank officials deliver their ‘comprehensive assessment’ of the economy operating under the negative-interest rate policy (NIRP).
  • Move back below former resistance around 101.20 (50% expansion) may threaten the rebound from 99.53 (August low), which corresponds with the next downside area of interest coming in around 99.70 (61.8% expansion).
  • 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 +2.83 as 74% of traders are long, with short positions 38.3% lower from the previous week, while open interest stands 14.4% below 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 Index11955.5411967.1211912.770.3299.31%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR stages a larger recovery ahead of the key U.S. data prints even as Fed Governor Lael Brainard argues for continued ‘prudence’ in normalizing monetary policy, while Jon Hilsenrath at the Wall Street Journal, who’s seen as the unofficial mouth piece of the Federal Reserve, warns ‘Divided Federal Reserve Is Inclined to Stand Pat;’ despite narrowing expectations for a September rate-hike, Fed Funds Futures continue to highlight a greater than 60% probability for higher borrowing-costs in December.
  • Market participants may put greater emphasis on U.S. Advance Retail Sales, the Consumer Price Index (CPI) and the U. of Michigan Confidence survey amid the mixed rhetoric coming out of the Federal Reserve, and a slew of positive developments may encourage Chair Janet Yellen and Co. to implement a hawkish-hold at the September 21 interest-rate decision as most central bank officials endorse an upbeat outlook for the U.S. economy.
  • A break/close back above 11,951 (38.2% retracement) to 11,965 (23.6% retracement) may spur a move back towards the top of the recent range, with the next immediate target coming in at 11,989 (50% retracement), followed by 12,027 (August high).
DailyFX Chart

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Read More:

S&P 500: Standing Head-and-Shoulders Above the Rest?

Risk Starts Week Lower as USD, JPY Gain Traction

DAX: Wobbles on ECB, Trend-line Comes into Focus

NZD/USD 2016 Rally at Risk Sub-7500 as Sentiment Stretches

--- 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.