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Talking Points:

  • USD/JPY Technical Strategy: awaiting reversal higher
  • USD/JPY approaching short-term support near 111.47 figure after spirited recovery
  • Sentiment Highlight: net-short retail bias gives preference for upside prevailing

The price of USD/JPY has fallen back after mounting a spirited recovery thanks to the US Dollar recovery from early September. Traders remain inclined to favor upside strength once the key market risk for Japan is cleared. On October 22, Japan will go to the polls thanks to a snap election called by PM Shinzo Abe where a victory may assure him the longest tenure of a PM in Japan’s post-war history.

Near-term positioning currently has been dominated by protection on aggressive JPY strength as identified by the options market. Short-term options that cover the October 22 election have surged to protect against a shock defeat of Abe. As the name implies, the outcome is wholly unexpected by institutions have learned to expect or at least protect against the unexpected thanks in large part to the Brexit and Donald Trump election outcomes. Should the election hand further control to Abe, the election hedge would likely expire worthlessly, and USD/JPY could catch up to risk assets like the Nikkei, which recently closed at the highest level since 1996 or the SPX55 that sits at all-time highs.

From current levels, a daily close below the 111.47 figure (late September pull-back low) opens the door for a challenge of the 111.10-109.65 area (38.2-61.8% retracement level of Sept.-Oct. range.) Alternatively, a reversal and close above 112.08 (weekly opening range high) exposes short traders to a sharp and painfulrise to the 112.31/52 zone (Oct. 12/13 high) followed by the monthly intraday high of 113.44.

Unlock our Q4 forecast to learn what will drive trends for the Japanese Yen and the US Dollar through year-end!

The Short-Term Reason for JPY’s Stubborn Strength You Should Know

Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

USD/JPY Insight from IG Client Positioning: net-short retail bias gives preference for upside prevailing

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

The Short-Term Reason for JPY’s Stubborn Strength You Should Know

USDJPY: Retail trader data shows 45.7% of traders are net-long with the ratio of traders short to long at 1.19 to 1. In fact, traders have remained net-short since Oct 06 when USDJPY traded near 112.802; theprice has moved 0.9% lower since then. The number of traders net-long is 18.2% higher than yesterday and 14.3% higher from last week, while the number of traders net-short is 9.6% higher than yesterday and 17.9% higher from last week.

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

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

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