Analys från DailyFX
USD/JPY Violently Reverses from YTD Low with Biggest Gain in 8-Months
Key Takeaways:
- USD/JPY technical strategy: pierce of 12-month trendline brought out the buyers
- USD/JPY traded to 107.32 on Friday, as high as 109.40 on Monday
- CFTC data showed hedge funds continued to hold JPY short position
- IGCS Highlight: Drop in net-long exposure favors contrarian via of upside
Hedge funds are likely patting themselves on the back, for now. Data from the CFTC showed they added to short JPY positions last week, which, if held, definitely played out well on Monday. Multiple risk-off scenarios that were feared last week going into the weekend failed to play out. As a result, the JPY sold off, and USD/JPY rose by the most in 8 months as the US Dollar rebounded.
The real action in JPY shorts may be seen in CAD/JPY or GBP/JPY, which traded to the highest level since November 2015 and 1-month highs respectively. USD/JPY pushed above 109, but recently traded on Friday to the lowest level of 2017 at 107.32. Validating the push higher in JPY was the SPX closing at a record high.
The technical picture seems to favor a continued bounce as a failed breakout, meaning the move to new 2017 lows did not hold or extend could lead to the aggressive unloading of long JPY positions. One theme that has plagued 2017 is that a plethora of potential risk-off scenarios have failed to stick to the wall, which happens in Bull Markets for stocks like we’re currently witnessing.
Adding to the Intermarket view that USD/JPY could see a continued bounce after failing to extend lower below 108 is the sentiment picture. IGCS is showing a decline of net-longs, and an increase of short exposure. As a contrarian indicator, a failure to hold an extreme level followed by retail traders adding exposure in the direction of the failed breakout if further evidence to favor a rebound.
While an across the board USD rally is not favored, it’s worth keeping an eye on weak currencies like the JPY that could benefit tactical USD longs. On Monday, we also saw a rebound in expectations for a December hike by the Fed. While still below 50%, which is considered priced in, it’s fair to say that a push higher in odds would align with USD strength, especially against weaker currencies like JPY.
Daily USD/JPY Chart: Strong rejection after piercing the trend line as risk-off sentiment fails to stick
Chart Created by Tyler Yell, CMT
USD/JPY Insight from IG Client Positioning: Drop in net-long exposure favors reversal higher
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.
USDJPY: Retail trader data shows 66.2% of traders are net-long with the ratio of traders long to short at 1.96 to 1. In fact, traders have remained net-long since Jul 18 when USDJPY traded near 114.057; the price has moved 4.2% lower since then. The number of traders net-long is 5.5% lower than yesterday and 5.2% higher from last week, while the number of traders net-short is 14.5% higher than yesterday and 4.4% higher 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. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USDJPY trading bias (emphasis added.)
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Written by Tyler Yell, CMT, Currency Analyst Trading Instructor for DailyFX.com
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Contact and discuss markets with Tyler on Twitter: @ForexYell
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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