Why Might the Japanese Yen Continue Lower?
Retail traders have bought aggressively into US Dollar (ticker: USDOLLAR) weakness against the Japanese Yen, and we would normally call for further USDJPY weakness through near-term trading. Yet it’s worth noting that retail USDJPY-long interest has dropped a noteworthy 18% since yesterday as the Dollar has jumped to intraday highs of ¥79 following a stronger-than-expected US private employment report.
We recently wrote that the USD likely set a significant bottom versus the JPY, and we continue to believe that the USDJPY is unlikely to break below ¥78. Our SSI-based “Tidal Shift” strategy most recently went long the USDJPY on the first signs that retail sentiment was turning around.
Ideally we would wait until for a larger shift in retail sentiment to take conviction in our calls for US Dollar strength against the Japanese Yen; there are still more than 8 traders long USDJPY for every one that is short. Yet early signs point to Dollar strength against the Yen.
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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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