EUR/JPY IG Client Sentiment: Traders Fade Rebound, Now Net-Short
IG Client Sentiment Index: EUR/JPY Rate Forecast (July 22, 2021) (Chart 1)
Number of traders net-short has decreased by 10.68% from last week.
CHANGE IN LONGS
CHANGE IN SHORTS
CHANGE IN OI
EUR/JPY: Retail trader data shows 47.95% of traders are net-long with the ratio of traders short to long at 1.09 to 1. In fact, traders have remained net-short since Jul 15 when EUR/JPY traded near 129.73, price has moved 0.16% higher since then. The number of traders net-long is 15.73% lower than yesterday and 22.55% lower from last week, while the number of traders net-short is 8.20% higher than yesterday and 10.68% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.
Our data shows traders are now net-short EUR/JPY for the first time since Jul 15, 2021 10:00 GMT when EUR/JPY traded near 129.73. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.
EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (April 2020 to July 2021) (CHART 2)
It's important to provide context to the recent change in retail trader positioning; there are technical reasons to think the shift in sentiment may not last long.
Yesterday, it was noted that “confidence in the bullish reversal would increase upon overtaking 130.67, the daily 21-EMA, which EUR/JPY rates have closed below every session since June 18."
Today, EUR/JPY rates attempted to retake its daily 13-EMA and failed (thereby also failing to achieve the daily 21-EMA), and over the last few hours, the daily candle has morphed into a bearish inside piercing candle - hinting at more potential downside. A move back to the monthly low of 128.59 is not out of the question. Otherwise, the daily 21-EMA remains the 'line in the sand' before confidence in a sustained bullish reversal can materialize.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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