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A Burden Removed Looks Set To Help Drive USD/JPY Higher

A Burden Removed Looks Set To Help Drive USD/JPY Higher

Tyler Yell, CMT, Currency Strategist

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  • USD/JPY Technical Strategy: buying dips above 112.47
  • Fundamental arguments aligning likely to play to USD/JPY Bulls favor
  • Sentiment Highlight: retail USD/JPY sentiment shift puts ST bias lower for USD/JPY

The JPY weakened overnight to 114 per USD on a large victory secured by Shinzo Abe that gave his party a super majority. A handful of Intermarket relationships that tend to drive JPY are in harmony right now that are also worth your attention:

  • Equities are higher in both the US & Japan, which correlates to higher USD/JPY
  • UST Yields are pushing higher on hopes that the Fed or a new Fed governor will strengthen the USD with tighter monetary policy that has been priced in recently
  • Options that were set to buy JPY in a risk-off event continue to come off after the election showing less resistance to a rising USD/JPY

The price chart that we focused on last time argued that bullish pressure for USD/JPY would rule the day on a close above 111.47. Within 24-hours of that article being published, buying pressure arrived, and USD/JPY move nearly vertically to 114. Now there is a keen focus on the price range of the extreme day of a range that sits at 114.37-113.625. A daily close above this zone would argue a strong break of chart resistance that would align with many Q4 moves in recent quarters that saw USD/JPY close aggressively higher.

A close below the baseline (26-period midpoint) would quell enthusiasm and show the resistance as a stronger force than first realized. However, as the strongest currency in the G8, betting on USD weakness should be evidenced by price, not hunch.

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

A Burden Removed Looks Set To Help Drive USD/JPY Higher

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

USD/JPY Insight from IG Client Positioning: retail sentiment shift puts ST bias lower for USD/JPY

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.

A Burden Removed Looks Set To Help Drive USD/JPY Higher

USDJPY: Retail trader data shows 49.7% of traders are net-long with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 17.8% higher than yesterday and 1.9% higher from last week, while the number of traders net-short is 1.1% higher than yesterday and 14.8% lower 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.Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse lower despite the fact traders remain net-short (emphasis added.)

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

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Contact and discuss markets with Tyler on Twitter: @ForexYell

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

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