USDJPY Analysis and Talking Points
- BoJ Speculation Pressures USDJPY
- Crowded USD Long Bet Raises Risk of Liquidation
- See our Q3 JPY forecast to learn what will drive the JPY through the quarter.
USDJPY Bears Beginning to Take Control
The Japanese Yen has continued to grind higher in the face of the recent USD weakness. This has come amid recent reports that the BoJ could allow for more flexibility regarding the implementation of the yield curve control and review its purchases of ETFs. Alongside this, President Trump last week announced his displeasure at the Fed continuing to raise rates, which has consequently kept the Dollar offered. The pair have now broken through support at 110.80 and is now making a run in on the 50% Fib retracement of the 108.11-113.17 rise. A close below key support levels could potentially pave the way for greater losses.
Crowded USD Long bets
Latest CFTC data suggest that USD long positioning is at the highest level since March 2017 at $18.41bln. Consequently, this poses increased risks that the USD may be susceptible to a liquidation of long positioning, particularly after recent comments made by President Trump. On the flipside, JPY shorts have continued to build and as is now sitting at $6.5bln, which is despite the recent strength in the JPY.
Where Next for USDJPY?
According to IG Client Positioning data shows 58.6% of traders are net-long with the ratio of traders long to short at 1.42 to 1. The percentage of traders net-long is now its highest since May 25 when USDJPY traded near 109.372. The number of traders net-long is 1.6% lower than yesterday and 40.7% higher from last week, while the number of traders net-short is 7.0% lower than yesterday and 32.8% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias.
USDJPY PRICE CHART: Daily Time Frame (April-July 2018)
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--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
