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Market update: JPY outlook shaky as retail traders remain bearish USD/JPY


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The Japanese yen weakens to its softest since November, while retail traders adopt a bearish stance to USD/JPY.

 

original-size.webpSource: Bloomberg

 

Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco | Publication date: Thursday 07 September 2023 

Bullish USD/JPY sentiment outlook

The JPY closed at its weakest against the US dollar since early November after the USD/JPY soared the most since late July. In response, retail traders have increased downside exposure in the exchange rate. This can be seen by taking a look at IG Client Sentiment (IGCS), which often functions as a contrarian indicator. With that in mind, will USD/JPY extend higher next?

The IGCS gauge shows that only about 20% of retail traders are net-long USD/JPY. Since an overwhelming majority of them are biased to the downside, this is offering a bearish outlook for the broader horizon.

Meanwhile, downside bets have increased by 3.72% and 7.4% compared to yesterday and last week, respectively. With that in mind, overall positioning and recent changes produce a stronger bullish contrarian trading bias.

IG client sentiment chart

 

original-size.webpSource: DailyFX

Japanese yen technical analysis

Taking a look at the daily chart below, USD/JPY has closed above 146.56, a key resistance point established throughout August. The breakout opens the door to resuming what has been the broader uptrend since the beginning of this year. Immediate resistance from here is the 61.8% Fibonacci extension level at 148.27. Pushing beyond that exposes last year’s peak of 151.94.

Keep in mind that negative RSI divergence is brewing. While prices have set higher highs, the momentum indicator has not. This can at times precede a turn lower. Such an outcome places the focus on the 20-day moving average, which can function as support, maintaining the upside technical focus. Otherwise, further losses would place the focus on rising support from March.

USD/JPY daily chart

 

original-size.webpSource: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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