Outlook and forecast: USD/JPY
In terms of the USD, we remain bullish on all major currencies except the JPY. Speculators are heavily bearish of the JPY but the commercial smart money has bought the Yen heavily on the COT Net Traders positions which points to a trend reversal. In this article, we will look at the sentiment, fundamentals and key technical levels…
Our bullish view of the USD generally has been based on bond yields which are far better than other G7 nations which can be seen on the chart below – Japan has the worst yields on the chart but what we also need to take into account is the Yen’s safe haven status…
If we look at price action over the last two weeks, the EUR and GBP have fallen hard on the USD but the USD has not powered higher on the JPY despite bond US bond yields moving up. The reason for this is US yields moving higher is creating risk-off and this means money will flow into the JPY as the number one safe-haven currency and it’s also very oversold:
“The JPY has room to recover some of its weakness seen over the last few weeks. 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) In terms of JPY short positions:
CFTC COT Net Traders Positions Point to A Trend Reversal
On the chart below, last week speculators added heavily to JPY shorts as commercial “smart money” accelerated their buying of the JPY. The COT Net traders report is a good tool for warning of trend reversals if commercials make big moves against speculators – this is because commercials are hedgers and will ONLY move hedges aggressively if they think a currency has overshot fair value and they view the JPY as oversold.
USD/JPY Technical Analysis
On the chart below we can see after breaking above the 104.00 level the USD has been in a strong uptrend and has remained above the 20-day moving average since February. In the last two weeks, we have seen upside momentum slow and the USD has failed to close above the 109.00 level, volatility is dropping and we think a turn down through support and the 20 day MA could trigger a significant correction to the downside. Stop protection initially should be behind major monthly resistance behind 110.00.
Research provided by LearnCurrencyTradingOnline.com
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