Market Analysis

Cloudy Prospects In Dollar/Yen

The price action in dollar/yen (USDJPY) has continued to be uncomfortable for yen shorts in recent sessions. Downward pressure on the pair on Thursday likely derived from the perception of a more dovish tone to the latest set of Fed minutes that were released on Wednesday. At any rate, the USDJPY pushed down through 111.65-75 which incorporated the 100-day and 200-day moving averages as well as the top of the daily ichimoku cloud before stopping just shy of the 111.02 level which represents the 50 percent retracement of the previous up move from 107.32 to 114.62.  If that level were to break, traders might rationally expect stop losses to be triggered below 111.00 and that might open up a move towards the current base of the daily ichimoku cloud, calculated by IFR, to be currently at 110.44. For their part, technical analysts at Germany’s Commerzbank noted on Thursday that “the intraday Elliott wave count is negative and continues to indicate rallies will fail circa 111.75. They indicate that we should allow for losses to 107.32 the September low.” What traders make of all this is, of course, a matter of choice. But aside all the technical analysis there is the inarguable fact that last Friday’s CFTC data showed the largest yen short position measured by the CFTC since Dec 2013. And given the drift lower in USDJPY since that data was collated on Tuesday 14 November, if that short yen position still exists, or even if it has been reduced, what’s left is likely stranded at a higher level. In such a circumstance, traders might anyway conclude that USDJPY currently remains a sell on a rally rather than being much of a buy on the dip. Any such perceptions of stale positioning might then coalesce with chart levels, such as those mentioned, to help guide a trading view.

Written by Neal Kimberley, External Currency Analyst.