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JPY Bulls Dominate Amid Growth Slowdown and Wrong-footed Speculators

JPY Bulls Dominate Amid Growth Slowdown and Wrong-footed Speculators

2019-01-02 10:20:00
Justin McQueen, Analyst
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JPY Analysis and Talking Points

  • JPY Advances as China Sparks Negative Risk Tone
  • Market Positioning Leaves USDJPY Vulnerable

China Provides New Year Reminder that Growth is Slowing

The Japanese Yen made advances throughout the Asian session after stocks took a hit following the latest China data. Caixin Manufacturing PMI fell to 49.7, missing analyst estimates of 50.2 and more importantly, moving into contraction territory for the first time since May 2017. That said, this reaffirms the view that global growth is indeed slowing down, which in turn should keep the JPY on the front foot against its major counterparts after regaining its allure in times of risk off. USDJPY now trading at the lowest level since June 2018 following the break below 109, eyes are now on the May low at 108.11.

Wrong-footed Speculators to Exacerbate JPY Buying

Despite the slide in USDJPY throughout last month, speculators remained bearish on the JPY, which accounts roughly a third of USD long positions. The most recent CFTC data from December 21st showed JPY net shorts totalling $11.4bln, while USD net longs hit $29.5bln. As such, USDJPY may well see current losses exacerbate on short covering as the fundamental backdrop softens.

JPY Bulls Dominate Amid Growth Slowdown and Wrong-footed Speculators

Source: Reuters. CFTC Speculative Positioning.

USDJPY Price Chart: Weekly Time Frame (Feb 2015 -Jan 2019)

JPY Bulls Dominate Amid Growth Slowdown and Wrong-footed Speculators

Bearish momentum in USDJPY has shown little signs of abating anytime soon amid the break below the 38.2% Fibonacci retracement. A close below could see the pair move towards 108.11, which marks the May 2018 low. Of note, my top trade for 2019 is to short USDJPY

USDJPY TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX

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