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JPY Set To Challenge King Dollar Status In G8, Dollar Likely To Win Out

JPY Set To Challenge King Dollar Status In G8, Dollar Likely To Win Out

Tyler Yell, CMT, Currency Strategist

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Talking Points:

  • USD/JPY Technical Strategy: anticipating break and hold above 7-month resistance at 115
  • Unwind of major USD short position could continue to lift DXY in Q4
  • Sentiment Highlight: net-short retail bias gives preference for upside prevailing

Maybe USD/JPY is not getting the message. Historically leading markets that are highly correlated to JPY are charging higher, which begs the question; can USD/JPY breakout of this 7-month price range in USD/JPY.

For multiple reasons soon to be explained, I believe yes that USD/JPY will breakout, and stay above the 115 level. The first market to keep an eye on is the rise in US Treasury Yields. UST 10Yr yield broke above 2.4% for the first time since May. While USD/JPY has risen to the top of the range, the question remains whether or not there is enough gas in the tank for USD/JPY to break higher. Looking to the next leading market, the Nikkei, I would, again yes. The Nikkei 225 has moved higher by 8% after the PM Shinzo Abe locked in his majority and ability to sustain Abenomics, and export (and therefore, JPY weakening) focus of monetary policy has not appeared to have hit USD/JPY aggressively. Lastly, option premiums for anticipated JPY strength or at least the willingness to pay a premium for out-of-the-money JPY calls (USD/JPY lower) has come to the lowest level since May.

On Friday, markets did recognize a flash of JPY strength on a comment that US President Trump was leaning toward Jerome Powell, which took the USD/JPY from the session high of 114.45 to 113.71 before rebounding back toward 114 near the close. Friday’s high also aligned with the common resistance since May near 114.30, which is the 61.8% retracement level of the December-September price range.

Above the July 11 peak of 114.49, traders should keep an eye on the March high of 115.51, and a breakout above this zone would turn focus 116.234 (78.6 of December-September range.)

Unlock our Q4 forecast to learn what will drive trends for the Japanese Yen and the US Dollar through year-end!

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Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

USD/JPY Insight from IG Client Positioning: net-short retail bias gives preference for upside prevailing

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

JPY Set To Challenge King Dollar Status In G8, Dollar Likely To Win Out

USDJPY: Retail trader data shows 50.7% of traders are net-long with the ratio of traders long to short at 1.03 to 1. The number of traders net-long is 4.1% higher than yesterday and 6.5% higher from last week, while the number of traders net-short is 3.9% lower than yesterday and 2.7% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias (emphasis added.)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

To receive Tyler's analysis directly via email, please SIGN UP HERE

Contact and discuss markets with Tyler on Twitter: @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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