Japanese Yen – Last week I cited retail and professional speculative positioning as a key reason for a USDJPY tumble, but we’re seeing early signs that the USDJPY may indeed bounce.
Trade Implications – USDJPY: There were a numberofreasons to expect major Japanese Yen strength (USDJPY weakness) last week, but now we’re seeing early signs of a potential turn. What exactly?
I’m looking at FX optionstraders panic as the USDJPY erases its post-Bank of Japan Quantitative Easing rally. And clearly that’s cause for concern, but I think it’s also clear that this might be the sort of capitulation that allows the USDJPY to resume its uptrend.
I’m further seeing retail forex traders hit their most net-long USDJPY since the pair broke above ¥80. It’s always dangerous to try and get too comfortable in calling for reversals week in and week out, but this might be the short-term sentiment extreme that allows the USDJPY to resume its larger uptrend.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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