USDJPY – Retail forex trading crowds continue buying aggressively into US Dollar weakness as the Japanese Yen strengthens, giving us a modestly bearish USDJPY trading bias.
Trade Implications – USDJPY: Our sentiment-based Breakout2 trading strategy currently holds Japanese Yen-long positions versus the US Dollar, Australian Dollar, and British Pound (short USDJPY, AUDJPY, GBPJPY). The system has sold these JPY crosses as they break key lows, and it typically does well in times of strong market volatility. Yet as our “Volatility” indicator will show, there is little expectation of big Yen moves in the days and weeks ahead. Our SSI leaves us bullish JPY (bearish USDJPY), but we’ll need to see a build in volatility expectations before we wholeheartedly advocate chasing recent strength.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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