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Talking Points:
- USD/JPY Technical Strategy: anticipating hold of support near 111/110.7 followed by upside
- JPY spiked temporarily on report that N. Korea fires ballistic missile
- Sentiment Highlight: 63% of traders are net-long favoring potential for further JPY strength
A ballistic missile launch from North Korea was not enough to take USD/JPY to fresh multi-month lows on Tuesday. The 111-handle offered aggressive support, and other JPY-crosses like GBP/JPY saw a ~200-pip range that ended with JPY weakness.
JPY strength in a broader sense continues to be a source of confusion. One argument as to the persistent bid of the JPY is the view that the Bank of Japan may soon turn a shade more hawkish relative to prior BoJ rhetoric. The credible way traders see this possibly playing out would be a shift in 2018 of the Yield Curve Control (YCC) target from 0% to 0.25%
Looking to other markets to explain the JPY, it is hard to argue that the markets are moving toward a risk-off environment where JPY is often in demand. In addition to stocks near or at record-highs with little stopping them, US Treasury yields continue to stay near the top of recent ranges after US data continues to surprise and impress while other inflationary indicators like commodities also show demand pressure pushing up prices. Should these backdrops remain, it’s difficult to get excited about being long JPY.
As November comes to a close, USD/JPY has moved lower by over 3%. The spot price has come into multiple forms of support that should grab trader’s attention. The initial support point is the 50% Fibonacci retracement of the September-November price range of 107.294-114.737.
Until a break below the Ichimoku cloud base and 61.8% Fibo retracement at 110.71 and 110.137 respectively, traders would do well to hold a longer-term bullish view. The confirmation price of a bullish breakout would occur near the November 22 high and the 55-DMA at 112.493 and 112.64 respectively. Until the latter takes place, traders may look to other JPY crosses for signs of developing JPY weakness.
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Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
USD/JPY Insight from IG Client Positioning: 63% of traders are net-long favoring potential for further JPY strength
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.
USDJPY: Retail trader data shows 63.1% of traders are net-long with the ratio of traders long to short at 1.71 to 1. In fact, traders have remained net-long since Nov 15 when USDJPY traded near 113.413; the price has moved 1.6% lower since then. The number of traders net-long is 2.6% lower than yesterday and 12.9% higher from last week, while the number of traders net-short is 12.9% lower than yesterday and 10.4% 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. 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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