Japanese Yen Likely Topped on Sentiment Extreme
USDJPY - Crowds remain aggressively net-long the US Dollar against the Japanese Yen, and record positioning may actually warn that the USDJPY set a significant bottom through September trade. We most often use our retail trader-based Speculative Sentiment Index as a contrarian indicator to price action; if crowds are long, we prefer to be short.
Yet one-sided sentiment extremes quite often occur at tops and bottoms, and the fact that there were nearly 20 retail traders long USDJPY for every short served as fairly clear warning that a bottom may be in place.
Key price levels to watch for the USDJPY are support of ¥78 and resistance of ¥78.65.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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