Analys från DailyFX
USDJPY Surges
– Dollar has surged versus the Yen and tests major resistance
– US Treasury yields have likewise surged, the correlation to the Yen remains strong
– We like the USDJPY higher because of yields and a major shift in retail sentiment
The USDJPY trades at critical resistance as it nears the ¥100 mark. Why might it continue higher? Here are five charts that tell the story.
US Dollar Surges vs Japanese Yen and Trades at Critical Resistance
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
To understand the USDJPY surge and gauge the likelihood of a further breakout, we take a look at a key driver: yields.
USDJPY Surges and Trades near Critical Resistance as Yields Rise
Data source: Bloomberg
The correlation between the US Dollar/Japanese Yen exchange rate and the US 10-year Treasury Note yield trades near multi-year highs, and it’s critical to note that yields have broken key resistance.
US 10-Year Treasury Note Yield Breaks Key Resistance at 50-day and 100-day Simple Moving Averages
Data source: Bloomberg
Viewed from a yields/correlation perspective, we believe the USDJPY may indeed trade on to fresh highs. Adding further conviction to our USDJPY-bullish calls are two factors.
1. The recent surge in US Nonfarm Payrolls figures has forced a material shift in US Federal Reserve interest rate expectations. Treasury yields may have forced a sustained break higher and could take the USDJPY to further highs.
2. A substantial shift in forex trader sentiment may help confirm the USDJPY turn.
Retail Forex Traders Have Sold Aggressively into the USDJPY Rally, Pointing to Further Gains
Source: FXCM Execution Desk Data
Retail forex short interest in the USDJPY has surged 80 percent since last week and is now at its highest since the pair traded above ¥103 in May. Our sentiment-based Momentum2 system is now long USDJPY from ¥99.06.
We like said position as long as the pair remains above key intraday support at ¥98.90, and it’s likewise worth noting that the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) trades above significant channel and 200-day SMA resistance.
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
Obviously any important shifts in price and sentiment could derail our USDJPY-bullish forecast. But in the meantime we like trading it higher. Sign up for future e-mail updates via my e-mail distribution list.
Forex Correlations Summary
View forex correlations to the SP 500, SP Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.
Data source: Bloomberg. Chart source: R
SEE GUIDE ON READING THE ABOVE CHART
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.
Contact and follow David via Twitter: https://twitter.com/DRodriguezFX
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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