The dollar continues its surge against the Japanese Yen, and we favor further USDJPY gains for these three reasons.
1. A significant break in the Japanese Nikkei 225 likewise favors a higher USDJPY.
2. A surge in US Treasury Yields boosted the USDJPY earlier in the week
3. A substantial shift in trader sentiment favors Japanese Yen weakness
USDJPY Surges and Trades Towards September Peaks at ¥100.60
Source: FXCM Trading Station Desktop, Prepared by David Rodriguez
Below are two charts that emphasize the significance of the break higher in the Nikkei as well as US Treasury Yields.
Correlation between USDJPY and Nikkei 225 Remains Strong
Data source: Bloomberg
USDJPY Surges and Trades near Critical Resistance as Yields Rise
Data source: Bloomberg
Our retail forex trader sentiment sample likewise shows a substantial shift in FX trading sentiment. Yesterday we highlighted this shift as a major reason that the USDJPY would likely trade higher.
Forex Trading Crowds Sell Aggressively into USDJPY Gains, Favoring Continued Rallies
Source: FXCM Execution Desk Data
Retail forex short interest in the USDJPY has surged 140 percent since last week and is now at its highest since the pair traded above ¥103 in May. Our sentiment-based Momentum2 system remains long USDJPY from ¥99.06.
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 SummaryView 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 DailyFXPLUS.
Contact and follow David via Twitter: https://twitter.com/DRodriguezFX