Talking Points:

- USD/JPY Searches for Support as Risk Sentiment Abates; RSI Approaches Oversold Territory.

- GBP/USD Struggles to Clear 1.2490 Hurdle Ahead of U.K. Retail Sales.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

110.86

111.80

110.75

85

105

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • USD/JPY grinds to a fresh 2017-low of 110.75 as risk sentiment continues to abate, with the pair at risk for further losses as it extends the series of lower highs & lows from the previous the week; keeping a close eye on the Relative Strength Index (RSI) for confirmation/conviction as the oscillator threatens the bullish formation carried over from the previous year and approaches oversold territory.
  • The Nikkei (JPN225) highlights a similar behavior as the benchmark equity index slips to fresh monthly low (18,962) and appears to be on course to test the 2017-low (18,638)going into Japan’s fiscal year-end; the shift in market behavior appears to be a growing theme as the DAX (GER30) also gives back the advance from earlier this month.
  • Despite the limited market reaction to the Bank of Japan (BoJ) Minutes, the Yen may continue to track risk sentiment as Governor Haruhiko Kuroda and Co. carry out the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control; nevertheless, the central bank may come under increased pressure to further support the real economy as ‘a few members expressed the view that the rate of change in the CPI would not reach around 2 percent during the projection period,’ and the deviating paths for monetary policy may continue to instill a long-term bullish outlook for USD/JPY as the Federal Open Market Committee (FOMC) pledges to further normalize monetary policy in 2017.
  • Nevertheless, the recent decline in USD/JPY suggests a broader shift in market behavior is underway going into the final days of May, with a close below the Fibonacci overlap around 111.30 (50% retracement) to 111.60 (38.2% retracement) raising the risk for a move back towards the next downside region of interest around 109.40 (50% retracement) to 109.90 (78.6% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2452

1.2507

1.2431

27

76

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD pares the advance from earlier this week, with the pair at risk for further losses as it struggles to clear the Fibonacci overlap around 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement); moreover, the recent pickup in the RSI appears to be losing momentum as the oscillator appears to be turning around from trendline resistance.
  • Despite forecasts for a 0.3% rebound in U.K. Retail Sales, the marked expansion in headline and core inflation may sap disposable incomes especially as the Bank of England (BoE) expects private-sector consumption ‘to slow further during the year ahead as the fall in sterling fed through to higher prices, reducing households’ purchasing power.
  • With that said, Kristin Forbes’ push to raise the benchmark interest rate by 25bp may fail to bear fruit as officials argue ‘pay growth has remained subdued, while measures of inflation expectations remain at levels broadly consistent with the achievement of the inflation target,’ and the majority may continue to endorse a wait-and-see approach at the next policy meeting on May 11 as the U.K. plans to start its departure from the European Union (EU) on March 29.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

Click HERE for the Entire DailyFX Webinar schedule.

DailyFX SSI
  • Retail trader data shows 74.5% of traders are net-long USD/JPY with the ratio of traders long to short at 2.92 to 1. In fact, traders have remained net-long since January 9 when USD/JPY traded near 116.304; price has moved 4.5% lower since then. The number of traders net-long is 11.7% higher than yesterday and 5.7% higher from last week, while the number of traders net-short is 10.1% lower than yesterday and 26.5% lower from last week.
  • Retail trader data shows 48.4% of traders are net-long GBP/USD with the ratio of traders short to long at 1.07 to 1. The number of traders net-long is 8.2% lower than yesterday and 33.2% lower from last week, while the number of traders net-short is 12.9% higher than yesterday and 70.1% higher from last week.
  • The jump in net-short GBP/USD positions suggests the retail crowd is looking for range-bound conditions to persist over the coming days, while the decline in net-short USD/JPY interest could be attributed to month/quarter-end flows.

Why and how do we use the SSI in trading? View the free trading guide here

DailyFX Calendar

Click Here for the DailyFX Calendar

If you’re looking for trading ideas, check out our Trading Guides.

Read More:

Technical Weekly: GBP/USD Bullish Outside Week; Downtrend Over?

Gold Prices Shine as USD Drops- Post FOMC Rally Eyes Initial Resistance

DAX – Rising Wedge Reaches Maturity, Waiting for the Break

Positioning Shift And Sentiment May Pressure Oil As Supply Swells

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.