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.
There are early signs that this may in fact be the bottom we’ve been waiting for as the USDJPY trades steadily higher. Retail FX Traders remain heavily long the USDJPY but have reduced their exposure; longs are down 32% since last week. Maximum risk on the trade is manageable given that longer-term targets would come in far higher. It’s early yet, but we see evidence of a potential USDJPY bottom. We would take further conviction in any trades if we saw a significant correction in Retail FX Trading crowd sentiment.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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