In terms of the JPY its the most hated major currency at present, trading sentiment is heavily bearish towards it but speculators have pushed the JPY to a bearish extreme. We think Swing trading the JPY long offers low risk against potential reward. Enclosed 2 x setups USD/JPY and AUD/JPY.
COT Net Traders Positions
“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) We agree with this view the Yen is cheap historically but the main reason to trade long Yen at present is speculative positioning.
On the COT Net Traders positions below, we can see speculators have heavily sold the JPY while commercial hedgers who are “smart money” have increased their buying. In terms of using the Net Traders Positions: Commercials are hedgers and will ONLY move their hedges aggressively if they think prices have moved to far from fair value and they have made a big move which warns of a potential JPY rally
In terms of USD/JPY on the chart below we ran above the 110.00 level which saw heavy volume as shorts were liquidated and buyers took the breakout but we have been unable to take out 111.00 level and have seen 5 lower highs. We think the USD is a sell through nearby support, stop back from the 111.00 level for a move down to 106.00 which would correct the overbought condition.
AUD/JPY Sentiment and Levels
There is no official COT data for the above cross but if we take the two majors and create the cross data we get speculators 4.6 to 1 in terms of longs over shorts and commercials 4.4 to 1 in terms of shorts over longs divergence between the two groups is + 9.2 which is the biggest divergence for a year.
In terms of the chart below we have failed for several months to take out the 85.00 level, we would sell a break below support at 84.00 for a move down to 82.00 then 80.00 with initial stop protection behind 85.00…
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