USDJPY Breaks Key Trendline as Risk Sentiment Remains Fragile

USDJPY Analysis and Talking Points:

• Risk Off Sentiment Spurring Safe Haven Flows
• Speculators Caught on the Wrong Side

Brand New FX Forecasts for Q4

Risk Off Sentiment Spurring Safe Haven Flows

The Japanese Yen has begun the week on the front foot with risk off sentiment continuing to spur safe haven demand, following on from last week’s strength, which saw the largest weekly rise since the stock market correction in Q1. Consequently, with risk sentiment remaining fragile, particularly in the US given last week’s corrective moves, the JPY will look to hold onto its current elevated levels.

Investor confidence has been dented by the latest uncertainty surrounding Brexit with talks said to have reached an impasse as the UK and EU fail to resolve key issues, most notably the Irish border. Elsewhere, geopolitical tensions are on the rise after the US threatened Saudi Arabia over the disappearing Saudi Journalist.

Speculators Caught on the Wrong Side

According to the latest CFTC data, the Japanese Yen remains the largest net short against the Dollar, which in turn, increases the risk that USDJPY could be vulnerable to additional losses. As it stands, USD long positioning is at the highest since December 2016, equating to roughly $28.4bln, in which USDJPY almost makes up half of those positions ($12.75bln).

USDJPY PRICE CHART: DAILY TIMEFRAME (Jan-Oct 2018)

Chart by IG

USDJPY has made a key breach through the rising trendline support from the 2018 low (104.55). Subsequently, this opens up room for a move towards the 50% Fibonacci retracement (from the 118.66-104.34 fall) at 111.50.

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--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

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