Japanese Yen Uptrend Holds But Sentiment Studies Hint at Turn

JAPANESE YEN TECHNICAL FORECAST: NEUTRAL

• Japanese Yen uptrend held up through worst selloff in 6 weeks
• Breakdown may be brewing but clear-cut confirmation needed
• Retail sentiment studies warning of Yen losses brewing ahead

The Japanese Yen slumped against an average of its major counterparts last week, suffering the largest drawdown in six weeks. This puts the currency squarely at support defining its dominant uptrend since early 2018. This barrier is reinforced by the lower bound of a congestion range in play since early December 2019. Both thresholds tellingly held up through the selloff.

Japanese Yen weekly chart created with TradingView

On one hand, congestive price action over recent months may reflect digestion following a break through falling trend resistance set from late August. Alternatively, it may be interpreted as an emerging Flag chart pattern, which would hint that the preceding downswing could continue. The latter scenario needs a conclusive break of trend support to seem credible. The overall bias remains bullish in the interim.

Japanese Yen daily chart created with TradingView

Surveying Yen positioning across individual top-tier pairings yields similarly suggests that the Japanese unit is at a key inflection point, but keeps overall trajectory pointed lower. USD/JPY, EUR/JPY and CAD/JPY are perched just under pivotal resistance. AUD/JPY and NZD/JPY look more constrained still, with prices unable to make headway beyond the bounds of February’s trading ranges.

USD/JPY daily chart created with TradingView

EUR/JPY daily chart created with TradingView

AUD/JPY daily chart created with TradingView

NZD/JPY daily chart created with TradingView

USD/JPY TRADER SENTIMENT WARNS OF YEN LOSSES AHEAD

Nevertheless, the IG Client Sentiment (IGCS) warns of Yen weakness ahead. It shows that 66.86 percent of retail traders have net-short exposure in the benchmark USD/JPY currency pair, with the short-to-long ratio at 2.02 to 1. IGCS is typically used as a contrarian indicator, so the skew toward bets favoring USD/JPYweakness implies prices may continue to rise (i.e. the Yen may fall further).

The number of traders net-long is 5.89% lower than yesterday and 15.54% lower from last week, while the number of traders net-short is 5.04% higher than yesterday and 8.36% higher from last week.That traders are more net-short than yesterday and last week speaks to greater conviction in a USD/JPY-bullish sentiment-based trading bias.

See the full IGCS sentiment report here.

--- Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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