USD/JPY Continues To Carve Higher Highs & Lows; May High In Sight

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GBP/USD Daily

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Chart - Created Using Trading View

• GBP/USD clings onto the upward trending channel carried over from the previous month following the failed attempt to push below the former-resistance zone around 1.2270 (23.6% retracement), but the broader outlook remains tilted to the downside as the economic outlook for the U.K. remains clouded with high uncertainty; will keep a close eye on the Relative Strength Index (RSI) as the oscillator approaches the apex of the near-term wedge/triangle formation.
• Fresh comments from Bank of England (BoE) board members Andrew Haldane and Kristin Forbesmay boost the appeal of the sterling as central bank officials drop the dovish outlook for monetary policy, but the Monetary Policy Committee (MPC) could be forced to further insulate the real economy especially as the Prudential Regulation Authority looks to boost commercial-bank deposit guarantees to GBP 85K from the current GBP 75K limit.
• A closing price above 1.2490 (38.2% retracement) raises the risk for another test of the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement).

USD/JPY Daily

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Chart - Created Using Trading View

• USD/JPY appears to be on course to test the May high (111.45) as it extends the series of higher highs & lows from earlier this month, while the momentum indicator holds in overbought territory; however, a failed test of the pre-summer threshold paired with an RSI ‘sell’ signal (a move below 70) may generate a near-term correction ahead of the holiday weekend in the U.S.
• The ongoing pickup in risk appetite accompanied by growing expectations for December Fed rate-hike may keep the dollar-yen afloat over the remainder of the year, with Fed Funds Futures still pricing a 95% probability for a year-end move; the appreciation in the exchange rate may encourage the Bank of Japan (BoJ) to endorse a wait-and-see approach for 2017 as Governor Haruhiko Kuroda and Co. continue to monitor the impact of the quantitative/qualitative easing program with ‘Yield-Curve Control,’ but the fresh projections from Fed officials may dampen the appeal of the greenback should the group of policymakers continue to scale back the long-run interest rate forecast.
• Failure to preserve the downward trend from earlier this year shifts the broader focus to the topside targets, with a break of the May high (111.45) raising the risk for a move back towards the April high (111.88).

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• The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long since even after the British Pound ‘flash crash,’ with retail sentiment hitting a 2016-extreme of +5.97 during the previous month, while traders remain net-short USD/JPY since November 10.
• GBP/USD SSI sits at +1.74 as 63% of traders are long, with long positions 7.8% higher from the previous week even as open interest stands 9.3% below the monthly average.
• USD/JPY SSI sits at -1.51 as 40% of traders are long, with short positions 30.2% higher from the previous week, while open interest stands 13.9% above the 30-day average.
• Will keep a close eye on USD/JPY positioning as the retail crowd appears to be stuck on the wrong side of the market especially as the SSI pushes deeper into negative territory, while the exchange rate extends the advance from earlier this month.

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