Yen May Set Important Top (USDJPY Bottom)
USDJPY – Trading crowds remain aggressively net-long the US Dollar against the Japanese Yen and have been long since the pair traded at 90, giving us consistent signal that the USDJPY could fall to further lows. All the while, FX Options risk reversals are their most bullish the USDJPY in at least 8 years. There is significant risk that the Japanese Yen may have set an important top (USDJPY bottom), but attempting to catch bottoms remains very difficult and risky.
The ratio of long to short positions in the USDJPY stands at 6.96 as nearly 87% of traders are long. Yesterday, the ratio was at 5.44 as 84% of open positions were long. In detail, long positions are 4.8% higher than yesterday and 15.3% weaker since last week. Short positions are 18.1% lower than yesterday and 11.7% weaker since last week. Open interest is 1.3% stronger than yesterday and 18.7% below its monthly average.
We have warned that the USDJPY may set an important bottom on sentiment extremes for some time now, but it remains exceedingly difficult to catch market bottoms. Today’s rally suggests we might head higher, but it is too early to turn aggressively bullish.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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