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Japanese yen forecast: USD/JPY, AUD/JPY still attract short bets

Retail traders can’t get enough of buying up Japanese yen; this is despite persistent gains in USD/JPY and AUD/JPY and does this spell more trouble ahead for the currency?

Source: Bloomberg

For the most part, the Japanese yen just can’t get enough of a break from the selling onslaught that has weakened the currency to levels last seen in the 1990s. This is despite government intervention to try and stem a selloff in JPY. Fundamentally speaking, a dovish Bank of Japan compared to more hawkish central banks around the world is largely to blame.

Despite the yen’s onslaught, retail traders have time and time again continued to buy up the currency. This can be seen by looking at IG Client Sentiment (IGCS). The latter tends to function as a contrarian indicator.

With that in mind, if retail traders continue increasing their bullish exposure in JPY, could that speak to more trouble ahead for the currency?

USD/JPY sentiment outlook - mixed

The IGCS gauge shows that only about 19 percent of retail traders are net-long USD/JPY. This means that for long investor, over 4 are short. Since most traders are net-short, this hints that prices may continue rising.

However, upside exposure increased by 12.45% compared to yesterday while falling by 6.2% compared to a week ago. Overall, recent changes in exposure are offering a mixed outlook.

Source: DailyFX

Daily chart

On the daily chart, USD/JPY has confirmed a breakout above the 1998 high, rising to levels last seen in the early 1990s. The uptrend has brought the currency pair to the 61.8% Fibonacci extension level at 149.93.

A confirmatory breakout above this price could open the door to an uptrend extension, placing the focus on the 78.6% level at 152.54. Otherwise, a turn lower could see the 20-day Simple Moving Average perhaps holding as support, reinstating the upside focus.

Source: TradingView

AUD/JPY sentiment outlook - bullish

The IGCS gauge reveals that about 39% of retail traders are net-long AUD/JPY. Since most traders are net-short, this hints that prices may continue rising.

This is as downside exposure increased by 7.21% and 10.95% compared to yesterday and last week, respectively. The combination of current sentiment and recent changes offers a stronger bullish contrarian trading bias.

Source: DailyFX

Daily chart

AUD/JPY has confirmed a breakout above the near-term falling trendline from September, opening the door to perhaps extending gains back to the September high. Still, key resistance is a combination of the 50-day SMA and the 38.2% Fibonacci retracement at 94.342.

Confirming a push higher above these two points likely opens the door to uptrend resumption. Otherwise, key support is the 90.526 – 91.425 range.

Source: 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.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. 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. See full non-independent research disclaimer and quarterly summary.

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