Photo - Andreas Zanin
Andreas Zanin
Analysis | April 26, 2021

Outlook and forecast: JPY

In our previous Yen updates we had been looking for USD/JPY to reverse to the downside and we have seen some weakness and expect more in this pair.  We are also looking for both the EUR and AUD to confirm major moves to the downside against the JPY.  Below our updated view of the big fundamentals, sentiment and key technical levels in USD/JPY, AUD/JPY and EUR/JPY.

The JPY The Worst Performing Major in 2021 But Trend Reversal Coming

“Even though the safe-haven JPY is the worst-performing G10 currency in the year to date, it is the best performer on a 5-day view as Covid related News in the Asian region destabilizes risk appetite. Based on the current news flow from Asia we have revised up our forecasts for the safe-haven JPY. We see risk that USD/JPY will dip to 107 on a 1 mth view.” (Jane Foley Rabobank) we think there is the potential for USD/JPY to move lower than this down to 106.00 or even lower due to speculative positioning in the pair:

“The yen is starting to look increasingly cheap on our valuation dashboard. At the same time, the overhang of short-JPY positions also appears overly stretched.” (TD Securities) Speculative positioning is stretched and speculators hold their biggest short position in over a year…

Sentiment COT Net Traders Positions

On the chart below we can see that large speculators (speculative funds) are holding their biggest short JPY position in over a year while on the other side, commercial hedgers who are “smart money” are heavily long. Both groups have maintained their positions this week with no big changes in positions. We expect the JPY to move up on the USD so more weakness in USD /JPY as speculators are taken on stop.

Technical Analysis USD/JPY

We topped out above the 110.00 level as expected and we are now in a downtrend and have resistance at 108.30 and then 109.00. We view any rallies as selling opportunities on weakness into these levels. The large speculative position short the JPY points to a move down to 106.00 with a possible overshoot down to the 104.00 level.

While we have seen the USD turn south on the JPY we have seen the AUD and EUR remain firm but think a trend change is coming. Both the EUR and the AUD are pricing in a lot of good news and speculators have built up their biggest long positions in over a year which points to limited upside and potentially big downside as the bullish sentiment peaks.

Technical Analysis AUD/JPY & EUR/JPY

In terms of AUD/JPY, the market is heavily bullish of the AUD but it remains off its yearly highs and we view the AUD as a sell back to first level resistance with a stop behind major resistance at 85.00 or a sell on a break of the 83.00 level. We are looking for a move down to 78.00 to correct the AUD’s bullish extreme.

In terms of EUR/JPY, we have sideways price action and volatility is dropping. Last week, we saw a move up to 131.00 which was rejected and we are expecting this level to hold on a close basis. We are waiting for a break of 129.70 and if we break below this level we expect a major move to the downside on higher volatility as speculators are taken out on stop.

 

 

Research provided by LearnCurrencyTradingOnline.com

The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.

Before making any investment decisions, you should know that:

– Key to Markets publishes analysis of any kind solely for information purposes and such analysis should not be construed as investment advice or a solicitation to buy or sell any financial instruments including without limitation CFDs.

– Key to Markets will not be liable for any loss or damage, which may arise, directly or indirectly from use of or reliance on the data provided by Key to Markets.

– Whilst all reasonable efforts are made to ensure that all content sources are reliable and that all information is presented, as far as possible, in a comprehensible, timely, accurate and complete manner, Key to Markets does not guarantee the accuracy or completeness of any information contained in the analysis.

– Past performance is not a guarantee of future results.

Latest Article
Improve your trading with a True ECN Broker
Trading account overview