Japanese Yen Forecast: Momentum Pushing JPY-crosses Larger

Japanese Yen Forecast Overview:

• The Japanese Yen continues to weaken as threat urge for food has firmed on the again of US President Trump leaving the hospital and Congress transferring nearer in direction of a fiscal stimulus deal.
• The trio of EUR/JPY, GBP/JPY, or USD/JPY proceed to advance in direction of bullish breakout territory but; all three pairs have seen important momentum shifts and at the moment are difficult key resistance.
• Per the IG Consumer Sentiment Index, the Japanese Yen has a bearish bias.

Japanese Yen Fades as Equities Climb

The Japanese Yen has been buying and selling on its backfoot in latest days, with down days proving inconsequential to the extra sizeable advances on up days. Pushed by enhancing threat urge for food, the JPY-crosses have been drifting greater alongside world fairness markets – and the most recent twists and turns within the US President Trump coronavirus saga. Now that the American president is out of the hospital and Congress seems to be inching in direction of a brand new fiscal stimulus package deal, the near-term information movement has confirmed burdensome for the Japanese Yen; in flip, the massive three JPY-crosses have continued to advance to now problem essential resistance ranges.

EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (November 2016 to October 2020) (CHART 1)

Not a lot has modified in latest day since our final EUR/JPY fee forecast replace, insofar because the pair stays trapped throughout the vary that we’re observing. “EUR/JPY charges have not too long ago discovered assist in acquainted territory, the place the December 2019 highs had been carved out after returning to the uptrend from the September 2012, September 2016, and January 2019 swing lows.”

That stated, it was additionally famous that “clearing the Fibonacci retracement cluster zone round 123.23/36 would give better confidence in a near-term rebound greater,” which has been achieved. Merchants ought to regulate the shift in momentum, which is evidenced by the flip greater by Sluggish Stochastics and the bullish crossover sign (albeit in bearish territory) in every day MACD. Shifting again above 125.00 would maybe be the clearest signal that the market has absolutely turned the nook.

IG Consumer Sentiment Index: EUR/JPY Price Forecast (October 6, 2020) (Chart 2)

EUR/JPY: Retail dealer knowledge reveals 39.85% of merchants are net-long with the ratio of merchants quick to lengthy at 1.51 to 1. The variety of merchants net-long is 5.44% greater than yesterday and 30.34% decrease from final week, whereas the variety of merchants net-short is 18.78% greater than yesterday and 54.46% greater from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-short suggests EUR/JPY costs might proceed to rise.

Merchants are additional net-short than yesterday and final week, and the mixture of present sentiment and up to date adjustments offers us a stronger EUR/JPY-bullish contrarian buying and selling bias.

GBP/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (October 2019 to October 2020) (CHART 3)

GBP/JPY charges have been influenced not solely by the aforementioned elements relating to world equities and Japanese financial knowledge, however by Brexit headlines as effectively – which has enhanced the volatility of GBP/JPY charges relative to the opposite JPY-crosses talked about on this report. However with Brexit negotiations showing to succeed in a spot of conclusion to keep away from the worst case situation, GBP/JPY has been capable of spring greater on the again of the fairness market rally.

The momentum shift in GBP/JPY has been extra obvious than that in both EUR/JPY or USD/JPY. GBP/JPY charges are absolutely above the every day 5-, 8-, 13-, and 21-EMA envelope (which is in neither bullish nor bearish sequential order). Sluggish Stochastics are rising via the median line, whereas every day MACD’s bullish crossover sign arrived sooner than EUR/JPY’s or USD/JPY’s. Advancing via the present Fibonacci retracement cluster round 135.99/136.45 could be seen as a constructive improvement.

IG Consumer Sentiment Index: GBP/JPY Price Forecast (October 6, 2020) (Chart 4)

GBP/JPY: Retail dealer knowledge reveals 51.09% of merchants are net-long with the ratio of merchants lengthy to quick at 1.04 to 1. The variety of merchants net-long is 9.30% decrease than yesterday and 17.02% decrease from final week, whereas the variety of merchants net-short is 24.44% greater than yesterday and 37.14% greater from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests GBP/JPY costs might proceed to fall.

But merchants are much less net-long than yesterday and in contrast with final week. Current adjustments in sentiment warn that the present GBP/JPY value pattern might quickly reverse greater regardless of the very fact merchants stay net-long.

USD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (October 2019 to October 2020) (CHART 5)

USD/JPY charges are proving to be the least thrilling of the three JPY-crosses talked about on this report, seeing as how costs are successfully again to the place they had been two weeks in the past…and the 2 weeks earlier than that…and the 2 weeks earlier than that…you get the image; we’re on the identical ranges we had been at the beginning of August. True, USD/JPY’s advance in latest days has been meager, with each the Yen and the US Greenback pressured by the unwind of the protected haven commerce. Till the pair finds itself above the descending trendline from the July and August swing highs, there’s little cause to deal with the latest bounce as something aside from a fluctuation inside a spread. It ought to be famous, nonetheless, that now we have now seen 4 consecutive months which have produced ‘decrease lows’ in USD/JPY – an ominous signal at the beginning of the fourth quarter.

IG Consumer Sentiment Index: USD/JPY Price Forecast (October 6, 2020) (Chart 6)

USD/JPY: Retail dealer knowledge reveals 48.78% of merchants are net-long with the ratio of merchants quick to lengthy at 1.05 to 1. The variety of merchants net-long is 10.26% greater than yesterday and seven.61% decrease from final week, whereas the variety of merchants net-short is 11.53% greater than yesterday and 38.80% greater from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-short suggests USD/JPY costs might proceed to rise.

Merchants are additional net-short than yesterday and final week, and the mixture of present sentiment and up to date adjustments offers us a stronger USD/JPY-bullish contrarian buying and selling bias.

— Written by Christopher Vecchio, CFA, Senior Forex Strategist