Technical Analysis: Still Within the Accumulation Zone
In the recent trading sessions, USDJPY reached 146.82, its highest level since November 2022, during the European Session. This surge is attributed to the 10-year yield rebounding to 4.210% from its previous low of 4.175%. The resulting reversal ignited buying interest in USDJPY, simultaneously exerting downward pressure on gold prices. However, following the release of weaker US job opening data (JOLTS) for July, USDJPY retreated from its peak, settling within the range of 145.144 to 146.406. Despite this pullback, there’s potential for an upward continuation, given that the price action is currently confined within the accumulation zone, as indicated on the chart.
Fundamental Analysis: Yen Remains Under Pressure
Japan recently released its July unemployment rate, which surged to 2.7% from the previous 2.5%, in line with expectations. The slightly weaker economic data, reflected in the increased jobless rate, aligns with the Bank of Japan’s (BoJ) focus on inflation. The BoJ is expected to maintain its loose monetary policy as it anticipates a decrease in inflation. In contrast, Goldman Sachs predicts that if the BoJ continues with its ultra-easy monetary stance, USDJPY could potentially reach 150. Goldman Sachs has revised their USDJPY target to 155 within the next six months. They also note that if the BoJ refrains from rate hikes, the yen is likely to remain on a weakening trend.
Insights Behind the Scenes: Unveiling Crucial Data for Traders:
Becoming a proficient trader requires more than just relying on technical and fundamental data; insight into real market dynamics is vital.
DXM: Decoding Retail Traders’ Sentiment
The DXM, or “Dump Money Index,” serves as a valuable tool for assessing retail traders’ sentiment. It quantifies the percentage of retail traders holding long or short positions in a given market. Presently, a substantial number of retail traders hold short positions (64%). This contrarian signal suggests potential advantages in taking reverse trades. Notably, statistics show that 95% of retail traders sustain losses over extended periods, implying their often erroneous market predictions. Contrarian traders who oppose retail sentiment may stand a higher chance of success, although success is never guaranteed.
Seasonality in JPY Futures: Bearish Outlook Until 2023 End
Seasonality analysis, rooted in historical data, forecasts future price movements. For JPY, this analysis indicates a likely continuation of bearish market conditions until the end of 2023. However, it’s crucial to recognize that seasonality overlooks new developments and economic changes, making it a pattern that can evolve and isn’t foolproof.
COT Data: Major Players Still Short on Yen
The Commitment of Traders (COT) report, issued weekly by the Commodity Futures Trading Commission (CFTC), offers insights into positions held by significant traders such as hedge funds and investment banks. The chart illustrates that hedge funds currently hold a substantial number of JPY short positions, approximately 69.9k. This data reflects their bearish outlook on the yen, providing valuable input for our long-term decision-making process.
Summary: Favorable Indicators for Long USD/JPY Position
• Technical Analysis: USDJPY is in an accumulation phase.
• Fundamental Analysis: BoJ maintains its ultra-easy monetary policy.
• DXM: The majority of retail traders hold long positions on the yen.
• Seasonality Analysis: Seasonal pattern suggests continued JPY bearishness until the end of 2023.
• COT: Significant JPY short positions held.
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