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 a massive 16.59 as nearly 94% of traders are long. Long positions are a substantial 78.4% higher than last week, while short positions have fallen 19.5% through the same stretch.
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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