EUR/JPY to fresh yearly highs but retail not very bullish

EUR/JPY has just traded to a fresh yearly high but retail traders don’t appear to be very bullish.

EUR/JPY talking points

  • EUR/JPY has set yet another fresh yearly high
  • Retail traders don’t appear so bullish with an imbalance of shorts

EUR/JPY fresh yearly highs, retail traders don’t appear very bullish

EUR/JPY has been in the midst of a strong bullish run, gaining more than 1000 pips from the lows in early May. This has been driven by a combination of optimism around Europe as the risk-on trade has went into full bloom, helping to drive Yen weakness on the other side of the pair.

EUR/JPY set yet another fresh yearly high on 13 August, taking out the ¥125.00 psychological level in the process, but retail traders do not appear to be so optimistic as a heavy imbalance of shorts indicates that retail may be trying to call a top here.

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EUR/JPY daily price chart

Taking a step back to look at the longer-term setup in the pair, and retail traders may be attempting to pre-empt a bearish trendline that could soon come into play. This trendline connects 2014 and 2018 swing highs; and for the month of August projects to approximately ¥127.50, which is another major psychological level in the pair.

EUR/JPY monthly price chart

Retail traders heavily bearish, door may remain open for upside

Given the backdrop of what’s become a very strong bullish trend with a possible point of resistance approximately 150 pips away, there could be scope for continued bullish momentum. This is also supported by the current juxtaposition of retail traders in the pair, with approximately 60% of traders in EUR/JPY holding net short positions. We typically take a contrarian view to crowd sentiment, and this could point to further topside in EUR/JPY.

Combining all of these variables indicates the potential for continuation of short-term bullish momentum, with a possible point of pause/resistance showing up around ¥127.50. If/when that price comes into play, the backdrop can be re-assessed as to whether a continued run up to ¥130.00 may be in the cards.

EUR/JPY IGCS

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