Japanese Yen – Retail forex traders are their most heavily long the Japanese Yen versus the British Pound (short GBPJPY) since 2011, and very heavily one-sided sentiment leaves us in favor of further Yen weakness across the board.
Trade Implications – GBPJPY: Our sentiment-based trading strategies have done well selling into Yen weakness versus the British Pound and the Australian Dollar (long GBPJPY and AUDJPY). Said systems may continue to build on recent outperformance, but it will be important to watch the next Yen moves.
As we note with the GBPUSD, crowds are often ‘right’ at the turns; the fact that traders are so aggressively short may signal we’re at a turning point in GBPJPY. That said, we’ll need to see concrete signs of reversal before switching tack on Yen pairs. Receive any and all updates on sentiment on my e-mail distribution list via this link.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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