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Japanese Yen Outlook: USD/JPY, EUR/JPY May Rise as Retail Traders Boost Short Bets

Japanese Yen Outlook: USD/JPY, EUR/JPY May Rise as Retail Traders Boost Short Bets

Daniel Dubrovsky, Strategist

Japanese Yen, USD/JPY, EUR/JPY, Technical Analysis, Retail Trader Positioning - Talking Points

  • Retail traders are increasingly betting the Japanese Yen may rise
  • Short exposure in pairs such as USD/JPY, EUR/JPY hint at gains
  • This is measured by IGCS, which can be a contrarian indicator

According to IG Client Sentiment (IGCS), retail traders appear to be increasingly betting that the Japanese Yen could appreciate against currencies such as the US Dollar and Euro. IGCS can at times be a contrarian indicator. If this trend in positioning continues, the Yen could be at risk instead. To learn more, check out this week’s recording of my webinar above.

USD/JPY Sentiment Outlook - Bullish

The IGCS gauge implies that roughly 48% of retail investors are net-long USD/JPY. Upside exposure has decreased by 8.31% and 31.11% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment, the fact that traders are net-short hints prices may keep rising. Recent shifts in positioning are further underscoring this outlook.

Japanese Yen Outlook: USD/JPY, EUR/JPY May Rise as Retail Traders Boost Short Bets

Technical Analysis

USD/JPY has been struggling to extend the downtrend that ensued since prices topped in June. Instead, the pair has been ranging between key support and resistance levels. The former seems to be around the 61.8% Fibonacci retracement at 109.07 while the latter at the 23.6% level at 110.67. In the event of a material turn lower, the 200-day Simple Moving Average may come into play to act as key support.

USD/JPY Daily Chart

Japanese Yen Outlook: USD/JPY, EUR/JPY May Rise as Retail Traders Boost Short Bets

Chart Created in Trading View

EUR/JPY Sentiment Outlook - Bullish

The IGCS gauge implies that about 44% of retail investors are net-long EUR/JPY. Downside exposure has increased by 25.51% and 30.82% over a daily and weekly basis respectively. Since we typically take a contrarian view to crowd sentiment, the fact traders are net-short hints prices may rise. Recent changes in sentiment are further underscoring the outlook to the upside.

Japanese Yen Outlook: USD/JPY, EUR/JPY May Rise as Retail Traders Boost Short Bets

Technical Analysis

EUR/JPY recently found support off the key 127.93 – 128.29 range, turning higher towards the 20-day SMA within the downtrend since May. Prices also struggled to hold a drop through the 200-day line, which could still maintain the dominant focus to the upside. On the other hand, a bearish crossover between the 20- and 200-day lines could hint at further losses to come. Clearing the 20-day SMA exposes the 50-day line.

EUR/JPY Daily Chart

Japanese Yen Outlook: USD/JPY, EUR/JPY May Rise as Retail Traders Boost Short Bets

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from August 25th Report

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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