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We See Key Reasons Why Japanese Yen Might Surge Further

We See Key Reasons Why Japanese Yen Might Surge Further

2014-01-24 15:15:00
David Rodriguez, Head of Product
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Summary: The Japanese Yen has surged versus the US Dollar, the Euro, and other major counterparts. But why might this be the move we’ve been waiting for?

- Japanese Yen is top-performer versus major forex counterparts in the past two days

- Our retail forex positioning data warns this might be the start of much larger move

- Senior Strategist Kristian Kerr highlights a key cycle turn window in USDJPY

Big moves in the Japanese Yen suggest this may be the start of the larger reversal we’ve watched for, and the next moves in the USDJPY and EURJPY in particular could set the tone for JPY trading through the foreseeable future.

US Dollar Trades below Potentially Pivotal Support versus Japanese Yen

forex_trading_Japanese_Yen_might_finally_start_larger_rally_body_Picture_5.png, We See Key Reasons Why Japanese Yen Might Surge Further

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

Euro Trades at Similarly Pivotal Support versus the Resurgent Japanese Currency

forex_trading_Japanese_Yen_might_finally_start_larger_rally_body_Picture_6.png, We See Key Reasons Why Japanese Yen Might Surge Further

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

One critical factor we discussed yesterday was a material shift in retail forex trading sentiment, and our data suggests that the tide may have turned for the EURJPY and other JPY pairs.

Forex Trading Crowds Now at Biggest EURJPY Long Position since Key Turns

forex_trading_Japanese_Yen_might_finally_start_larger_rally_body_Picture_7.png, We See Key Reasons Why Japanese Yen Might Surge Further

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

What happens next could define Japanese Yen trends through the foreseeable future. And as a long-term JPY bear and US Dollar bull I argued that a USDJPY long position is my favorite trade of 2014. That remains true, but a substantial correction may in fact give me a better opportunity to get long at a lower price.

Indeed one factor very much worth noting is the fact that the recent Yen moves have coincided with a significant jump in volatility prices as seen through FX options markets.

Why is that significant? Put simply, it suggests that many derivatives traders are betting on and/or hedging against big currency moves in the days and weeks ahead.

Forex Volatility Prices Have Jumped as Traders Bet on/Hedge against Currency Moevs

forex_trading_Japanese_Yen_might_finally_start_larger_rally_body_Picture_8.png, We See Key Reasons Why Japanese Yen Might Surge Further

It will be critical to watch price action in the coming weeks as it could determine trends throughout the rest of the year. Follow any updates on the Japanese Yen and other currencies via this author’s e-mail distribution list.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.

Contact and follow David via Twitter: https://twitter.com/DRodriguezFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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