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USD/JPY Rattles Bearish Summer Trend; Retail FX Positioning Shifts

USD/JPY Rattles Bearish Summer Trend; Retail FX Positioning Shifts

David Song,

Talking Points:

- NZD/USD Remains at Risk for Larger Correction as H&S Formation Remains Intact.

- USD/JPY Rattles 2016 Bearish Trend; Retail Position Adjustments in Focus.

CurrencyLastHighLowDaily Change (pip)Daily Range (pip)


NZD/USD Daily Chart

Chart - Created Using Trading View

  • Even as the Reserve Bank of New Zealand (RBNZ) keeps the door open to further embark on its easing cycle, the broader outlook for NZD/USD remains constructive as the upward trend from earlier this year remains intact; keeping a close eye on the RSI as it sits on trendline support, with a break of the bullish formation raising the risk for a head-and-shoulders top.
  • The New Zealand dollar may face a larger correction ahead of the next RBNZ last 2016 meeting on November 10 amid growing speculation for a rate-cut, but the kiwi may continue to benefit from the low-yield environment especially if Governor Graeme Wheeler shifts gears and endorses a wait-and-see approach for monetary policy.
  • Will continue to watch the near-term range in NZD/USD, with support coming in around 0.7200 (38.2% expansion) to 0.7210 (38.2% retracement), while resistance stands at 0.7350 (61.8% expansion).
CurrencyLastHighLowDaily Change (pip)Daily Range (pip)


Chart - Created Using Trading View

  • USD/JPY may stage a larger advance ahead of the key data prints on tap throughout the first full-week of October as it threatens the bearish trend carried over from the summer months, with the Relative Strength Index (RSI) highlighting a similar dynamic; may see the near-term advance threaten the downward trend from earlier this year as Federal Reserve officials appear to be following a similar path to 2015.
  • It seems as though the Bank of Japan (BoJ) will retain its current policy at the next interest rate decision on November 1 as the central bank implements the ‘yield curve control’ to its existing list of non-standard measures; nevertheless, the Yen may continue to outperform its U.S. counterpart on a longer-term horizon as the region returns to its historical role as a net-lender to the rest of the world.
  • Need a break/close above 102.70 (38.2% expansion) to open up the next topside target around 104.20 (61.8% retracement), which coincides with the September high (104.32).
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd has been net-long USD/JPY since July 21, with retail traders net-short NZD/USD since September 26.
  • After hitting an extreme reading of +6.00 last month, USD/JPY SSI currently sits at +1.95 as 66% of traders remain long, while short positions have jumped 73.7% from the previous week even as open interest stands 2.7% below the monthly average.
  • NZD/USD SSI currently sits -1.42 as 41% of traders are long, with long positions 7.7% lower from the previous week, while open interest stands 3.9% below the monthly average.
  • May see the near-term breakout in USD/JPY accompanied by a further narrowing in the SSI going through the first full-week of October as there appears to be position adjustments ahead of the highly anticipated U.S. Non-Farm Payrolls (NFP) report.

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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.