Japanese Yen – There are countless warning signs that the Japanese Yen could soon bounce (USDJPY, EURJPY weaken), but retail traders remain aggressively long JPY and we have little choice but to favor further declines (USDJPY,EURJPY strength).
Trade Implications – EURJPY: Selling the Japanese Yen has been one of the most popular FX positions of the year, and indeed we’ve writtenrepeatedly in favor of USDJPY and EURJPY strength. Our high-volatility Breakout trading system has had a banner year selling the JPY, and there are reasons to believe it could continue to do well.
But we can’t ignore the warning signs: our Senior Strategist points out that a mere 3% of professionals polled believe the JPY will trade higher—a historic extreme. Our proprietary retail FX trader sample is at its most short EURJPY on record.
It’s certainly possible that the USDJPY and EURJPY could continue higher, but we’d be foolish to approach the trade with the same enthusiasm (or leverage) as we have in the past. Tread carefully as the Yen sell-off looks majorly overcooked.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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