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USDJPY – Retail forex traders have sold aggressively into USDJPY strength, and a contrarian view of crowd sentiment leaves us in favor of further rallies.
Trade Implications – JPY Pairs: Yesterday we highlighted a substantial shift in EURJPY positioning as signal of a potentially important EURJPY top and Japanese Yen bottom. Yet traders clearly had other things in mind as a surge in the Japanese Nikkei 225 fueled major gains in JPY pairs.
Our Senior Technical Strategist points out key reasons why further USDJPY strength is likely, and our purely sentiment-based Momentum2 trading strategy went long from ¥99.06 and GBPJPY from ¥158.41. There remains risk of a EURJPY failure at multi-year highs, but selling EURJPY seems risky given the impressive overnight reversal.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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