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.
How do we interpret and trade with the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
To receive the Speculative Sentiment Index and other reports from this author via e-mail, send a message with subject line “Distribution List” to email@example.com; Contact David via Twitter at http://www.twitter.com/DRodriguezFX
Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.