USD/JPY Retail FX Sentiment Back at Extremes Post Wait-and-See BoJ

Talking Points:

- USD/JPY Retail FX Sentiment Back at Extremes Post Wait-and-See BoJ.

- USDOLLAR Outlook Mired by Waning Interest-Rate Expectations.

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USD/JPY

Chart - Created Using FXCM Marketscope 2.0

• USD/JPY stands at risk of giving back the rebound from the June low (98.78) as it appears to have carved a lower-high during the previous month and preserves the downward trend from earlier this year; may see the pair carve a lower-low over the near to medium-term as the Bank of Japan (BoJ) continues to endorse a wait-and-see approach for monetary policy.
• Even though the BoJ keeps the door open to further embark on its easing cycle, recent headlines from local agencies suggest the central bank will remove its 2-year deadline to achieve the 2% target for inflation as Governor Haruhiko Kuroda and Co. continue to assess the impact of the negative-interest rate policy (NIRP); a shift in the policy guidance may boost the appeal of the Yen especially as Japan returns to its historical role as a net-lender to the world economy.
• A break/close below the Fibonacci overlap around 101.80 (23.6% retracement) to 102.10 (100% expansion) may lead to fresh 2016 lows in USD/JPY, with the next area of interest coming in around 98.30 (38.2% & 78.6% retracements).

• The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd remains net-long USD/JPY since July 22, with the ratio hitting an extreme during the previous month as it climbed to +5.28, marking the highest reading since 2012.
• The ratio currently sits at +3.46 as 78% of traders are long, with long positions 64.3% higher from the previous week, while open interest stands 14.5% above the monthly average.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• The USDOLLAR pares the sharp decline following the disappointing 2Q Gross Domestic Product (GDP) report even though the ISM Manufacturing survey shows a larger-than-expected slowdown in July, with the Employment component contracting from the previous month as the figure slipped to 49.4 from 50.4 in June.
• Even though market participants forecast another 180K expansion in U.S. Non-Farm Payrolls, the greenback stands at risk of facing additional headwinds over the near to medium-term as Fed Funds Futures highlight narrowing expectations for a 2016 Fed rate-hike.
• The close below 11,951 (38.2% expansion) to 11,965 (23.6% retracement) raises the risk for a further decline in the USDOLLAR, with the next downside hurdle coming in around 11,898 (50% retracement) to 11,914 (38.2% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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