USD/JPY Analysis:
- The dollar has weakened against the Yen after better than expected Japanese Flash Manufacturing PMI data; US Flash Manufacturing PMI out later today
- USD/JPY appears to be trading back within a channel, nearing a zone of support
- IG Client Sentiment: Recent developments hint at a potential reversal of current momentum
Signs of Potential Economic Recovery Remain Unclear
In the early hours of Friday morning, Japanese Flash Manufacturing PMI data came in at 46.6, slightly better than the estimated figure of 45. Crucially however, the higher figure remains below 50 which suggests that Japanese purchasing managers, on average, consider the industry to still be in a contractionary phase.
Why is PMI data viewed as an important leading indicator for an economy? Read How Forex Traders Use ISM/PMI Data
After worse than expected jobless claims yesterday, market participants turn their focus to the US Marketing Flash PMI later today. Current consensus is 51.9 which could mark the second straight month above 50 should expectations hold.
Chart of US Manufacturing PMI Ahead of the Data Release (Monthly)
Chart Created on TradingEconomics
For all market-moving data releases and events see the DailyFX Economic Calendar
USD/JPY Technical Levels
Price action has built on bearish momentum which has seen the pair trade lower over the past 2 days while trading back within the zones of support and resistance shown by the blue rectangles. More recently however, after approaching the zone of support around 105.35 – 105.40, the global reserve currency looks to have resisted a move lower on the back of what appears to be short term dollar strength (vs G10 currencies)
In the event of a stronger dollar, USD bulls may consider a break and close above the 105.72 as the initial hurdle before bringing into play the 106.15 – 106.24 zone of resistance.
If the demand for Japanese Yen continues at the expense of the dollar, USD/JPY bears may consider a break and close below the 105.35 – 105.40 zone as the litmus test for continued lower prices. Should this transpire, the next level of support becomes 105.20 followed closely by the 104.96 level.
USD/JPY 4-Hour Chart
Chart prepared by Richard Snow, IG
USD/JPY Sentiment data hints at potential reversal
At the time of writing, USD/JPY retail trader data shows 53.21% of traders are net-long with the ratio of traders long to short at 1.14 to 1.
USD/JPY IG Client Sentiment
DailyFX Sentiment Chart, IG
- However, a substantial increase in daily short positions of 33.72% opens the door to potential reversal of the current near term trend.
- Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.
| Change in | Longs | Shorts | OI |
| Daily | -16% | 1% | -3% |
| Weekly | -8% | 7% | 4% |
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
