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Highlights:
- USD/JPY technical strategy: low volatility into long-term support, anticipating bounce
- 2017 extreme day (April 17) range (109.05-108.13) acting as strong support pair
- IGCS Sentiment Highlight: US Dollar Likely to Fall even Further versus Japanese Yen
A dear old colleague of mine used to share with me the advice, friends, do not let friends sell at support. Today is a day to practice that discipline. The JPY has been deceptively strong. An index I run to help me see relative strength and weakness across G10FX shows that JPY remains the strongest currency in the G10 outpacing the EUR, which just closed at the highest level to the GBP since 2009. However, traders when looking at other markets are likely scratching their heads to the JPY strength.
Stocks are off their highs, but not by much. Commodities, lifted by base metals have seen astounding gains with Iron Ore higher by 50% in 50-days since the June low. Lastly, Emerging Markets continue to attract capital via ETFs and bonds that keeps support under higher-yielding EMFX. This all paints a picture that tends to align with a weak JPY. However, the disconnect is that the JPY remains deceptively strong.
USD/JPY is within 1X ATR(5) (82 pips) of a new 2017 low. Much of that has to do, of course, with the weak USD, but what appears too important to ignore is that traders are not comfortable selling JPY, at least not across the board that tends to go with times of blatant risk-seeking behavior.
The technical picture of the USD/JPY cross is rather simple. If we see a price break and close below 108.13, all hands will be on deck to see if imminent JPY strength is back and if it can take USD/JPY lower to 107.50 followed by 105.30, the two key support zones in view. If USD/JPY breaks above the recent resistance of 110.37 (Aug. 17 high), we may be seeing a reversal to the top of the long-term range in the 114 zone.
Friends may not let friends sell at support because a bounce could easily happen when you look at the plethora of support that combines the extreme day price range from April 17 as well as the rising Trendline from last August (red line on the chart below). However, friends should keep one another company in watching to see if the price break signals a larger shift in the FX market. Such a break would show the strongest currency in G10FX at time of this writing (JPY) is likely about to get its second wind (or fifth) in 2017 or if we’re witnessing a broader breakdown of USD.Either way, a close below 108.13 in USD/JPY should be on your radar. Should such a break happen before the trading activity picks up in September as per seasonality patterns, it could mean the path of resistance on this pair stays lower, and the charts could point lower for longer.
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Chart Created by Tyler Yell, CMT
IGCS Sentiment Highlight: US Dollar Likely to Fall even Further versus Japanese Yen
What do retail traders’ buy/sell decisions hint about the JPY trend? Find out here !
USDJPY: Retail trader data shows 70.1% of traders are net-long with the ratio of traders long to short at 2.34 to 1. In fact, traders have remained net-long since Jul 18 when USDJPY traded near 113.359; theprice has moved 3.8% lower since then. The number of traders net-long is 4.9% higher than yesterday and 19.7% higher from last week, while the number of traders net-short is 3.5% higher than yesterday and 11.7% higher 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias (emphasis added).
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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