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USDJPY – Retail FX traders are extremely long the US Dollar versus the Japanese Yen, and a contrarian view of crowd sentiment warns the USD/JPY could continue onto fresh lows. Indeed, the ratio of open long to short positions stands at a substantial 3.4:1—the largest such extreme since the pair traded near ¥101 through the second half of 2014.
We will continue to forecast USD/JPY declines until we see a substantial shift in retail trader positions. It is possible that such one-sided sentiment points to a major extreme and potential price reversal. Yet such moves are only clear in hindsight; it seems unwise to join the crowd as it buys into such sharp declines.
See next currency section: XAUUSD - Gold Prices May Break to Fresh Highs
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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