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USDJPY Well Placed to Edge Higher as Trade Tensions Ease

USDJPY Well Placed to Edge Higher as Trade Tensions Ease

Martin Essex, MSTA, Analyst

USDJPY talking points:

- The safe-haven JPY is losing its attraction as US/China trade concerns ease and a visit by North Korea’s leader to China lessens tensions in the region.

- That should help USDJPY, which is showing signs of stabilizing after its recent heavy losses.

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Safe-haven Japanese Yen loses its attraction

USDJPY is edging higher after its sharp losses so far this year as an easing of US/China trade tensions and a visit by North Korean leader Kim Jong Un to China lessen the attractions of the Japanese Yen, which is regarded as a safe haven in times of geopolitical upheaval. Moreover, the pair could rise further if it can break through trendline resistance on the charts.

Havens like the Yen have been in demand as traders reduce their exposure to riskier assets. However, that demand seems to be tailing off as hopes rise that the US and China will avoid a trade war and that Kim’s visit to China will lead to talks with US officials and begin the process of ending North Korea’s isolation.

USDJPY Price Chart, Daily Timeframe (2018 to Date)

Latest USDJPY price chart

Chart by IG

USDJPY chart looking more positive

From a technical standpoint, USDJPY will need to break through resistance from a trendline joining the falling highs recorded in February and March if it is to make further progress. That is currently just above the 106 level and if the pair manages to climb above it the next target will be the 50-day moving average just under 107.

To the downside, support lies at the trendline joining the February and March lows, now at 104.40.

Sentiment data positive for USDJPY too

Turning to confidence among retail traders, IG Client Sentiment data show 65.7% of traders are net-long USDJPY, with the ratio of traders long to short at 1.92 to 1. In fact, traders have remained net-long since December 29, when USDJPY traded near 112.759; the pair has moved 6.5% lower since then. The percentage of traders net-long is now at its lowest since March 6, when USDJPY traded near 105.577. The number of traders net-long is 4.1% lower than yesterday and 12.4% lower from last week, while the number of traders net-short is 32.1% higher than yesterday and 17.9% higher from last week.

At DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment point to the current USDJPY price trend soon reversing higher despite the fact traders remain net-long.

USDJPY sentiment chart

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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