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Japanese Yen Outlook: Will USD/JPY, AUD/JPY Rally Slow as Retail Traders Boost Long Bets?

Japanese Yen Outlook: Will USD/JPY, AUD/JPY Rally Slow as Retail Traders Boost Long Bets?

Daniel Dubrovsky, Strategist

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

  • Retail traders are only now slowly increasing bullish Yen bets
  • This is offering a bearish warning for USD/JPY and AUD/JPY
  • What are key technical levels to watch following their rallies?

In recent weeks, the Japanese Yen has been aggressively weakening against its major counterparts, pushing pairs like USD/JPY and AUD/JPY higher. This is as retail traders increased their downside exposure in these Yen crosses. This can be measured by looking at IG Client Sentiment (IGCS), which tends to behave as a contrarian indicator. Now, over the past couple of trading sessions, IGCS has been showing a slight increase in upside USD/JPY and AUD/JPY exposure. Could this hint at a turning point for these pairs?

USD/JPY Sentiment Outlook - Bearish

The IGCS gauge shows that about 26% of retail traders are net-long USD/JPY. Since most traders are net-short, this suggests prices may continue rising. Downside exposure has decreased by 4.42% compared to yesterday, while increasing by 4.23% from last week. With that in mind, recent changes in positioning warn that USD/JPY could reverse lower.

Japanese Yen Outlook: Will USD/JPY, AUD/JPY Rally Slow as Retail Traders Boost Long Bets?

USD/JPY Daily Chart

Looking at a daily chart, USD/JPY remains in an uptrend despite the pullback on April 20th. A rising trendline from early March can be seen guiding the pair to the upside. A breakout under the latter could hint at a turning point, exposing the 20-day Simple Moving Average (SMA). That may subsequently place the focus on the former 123.86 – 125.10 resistance zone, perhaps holding as new support. Otherwise, immediate resistance appears to be the 78.6% Fibonacci extension at 130.42.

Japanese Yen Outlook: Will USD/JPY, AUD/JPY Rally Slow as Retail Traders Boost Long Bets?

Chart Created in Trading View

AUD/JPY Sentiment Outlook - Bearish

The IGCS gauge shows that 33.22% of traders are net-long AUD/JPY. Since most traders are biased to the downside, this suggests prices may keep rising. However, upside exposure has increased by 14.46% and 17.28% compared to yesterday and last week respectively. With that in mind, recent shifts in retail trader positioning are warning that AUD/JPY could reverse lower ahead.

Japanese Yen Outlook: Will USD/JPY, AUD/JPY Rally Slow as Retail Traders Boost Long Bets?

AUD/JPY Daily Chart

On the daily chart, AUD/JPY has confirmed a breakout above the 93.621 – 94.319 resistance zone. However, prices recently left behind a Doji candlestick, which is a sign of indecision. This is as negative RSI divergence warns that upside momentum is fading. Given further downside confirmation, this could spell trouble for the pair. Such action would place the focus on the 20-day SMA, which could reinstate the upside focus. Otherwise, further gains expose the May 2015 high.

Japanese Yen Outlook: Will USD/JPY, AUD/JPY Rally Slow as Retail Traders Boost Long Bets?

Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from April 20th 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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