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USD/JPY Price Analysis: Strong Bounce on YTD Low Zone, US Data Jumps

USD/JPY Price Analysis: Strong Bounce on YTD Low Zone, US Data Jumps

Tyler Yell, CMT, Currency Strategist

Want our fresh USD/JPY outlook for Q3? Access our free forecasts by clicking here.

Highlights:

USD/JPY is working on a strong bounce from a familiar area. For the year of 2017, JPY has strengthened against weaker currencies like the US Dollar. For a while, everything was going wrong for the USD, but things may soon turn around. It is not that the US economy is roaring like a lion, but rather expectations may have become too grim, and a return to the mean is in the process. Whether the mean will be lower than last time, helping to solidify a downtrend is yet to be seen.

Recently, we saw from CFTC CoT positioning data that hedge funds are adding to an already aggressive short USD position. On Tuesday, US Retail Sales data posted the best print since December, which is coming after NY Fed President Bill Dudley said he would go ahead and support a 2017-rate hike before the year ends if data picks up. The dual effect to the USD to the highest level in four weeks.

The market seems at odds, but the path of least resistance, at least for the short term may turn higher for USD/JPY. We see that the JPY strength that was catapulted by the threats and back and forth rhetoric from North Korean’s Kim Jung Un and US President Trump is appearing hollow, and as such risk-off assets like sovereign bonds and gold are pulling back. After a test of $1,300/oz., Gold is working on its biggest loss in six weeks, helped by the strong US Dollar. As the demand for haven assets curbs, it is difficult to get excited about a further drop in USD/JPY. This expectation for further USD/JPY gains holds especially true when you look at the chart below.

On the chart below, you will notice that USD/JPY is bouncing higher off a highlighted zone. The highlighted zone is specifically the extreme day range for 2017 on April 17 when USD/JPY traded at its lowest level for the year. The April 17 range was a low of 108.13 with a daily high of 109.05. We have recently bounced off 109, and we could see a rather sizable bounce higher to the middle of the range near 111.6 and possibly to the top of the range near 114. Either way, until the range support break, which would be validated by a daily close under 108.13 or we come to the top of the range, it is difficult to get excited about buying JPY against USD.

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USD/JPY Price Analysis: Strong Bounce on YTD Low Zone, US Data Jumps

Chart Created by Tyler Yell, CMT

USD/JPY IG Trader Sentiment:USD/JPY trend ready for next major move with reduced open interest

USD/JPY Price Analysis: Strong Bounce on YTD Low Zone, US Data Jumps

What do retail traders’ buy/sell decisions hint about the JPY trend? Find out here!

USDJPY: Retail trader data shows 72.0% of traders are net-long with the ratio of traders long to short at 2.58 to 1. In fact, traders have remained net-long since Jul 18 when USDJPY traded near 112.524; price has moved 1.9% lower since then. The number of traders net-long is 9.9% lower than yesterday and 6.2% lower from last week, while the number of traders net-short is 1.9% lower than yesterday and 13.6% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USDJPY trading bias.(Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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

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