USDJPY – Retail forex traders have bought into recent US Dollar strength versus the Japanese Yen, which admittedly complicates our calls for a potential grind higher in the high-flying USDJPY.
Trade Implications – USDJPY: Recent retail sentiment moves in the USDJPY have caught us off-guard as the trading crowd almost always sells strength and buys weakness. The fact that most traders are long USDJPY as it trades at multi-year peaks complicates our trading biases, and indeed our sentiment-based Momentum2 system most recently got stopped out of a short position. One potential explanation is that retail traders are buying as the trend nears its end. Yet we’d need to see a much clearer price reversal to advocate selling into such impressive strength.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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