USD/JPY Flash-Crash Rebound Fuels Expansion In Retail Short Exposure

JAPANESE YEN TALKING POINTS

The USD/JPY rebound following the currency market flash-crash may ultimately spur a run at the monthly-high (109.68) as the exchange rate initiates another series of higher highs & lows, but dollar-yen stands at risk of facing range-bound conditions ahead of the next Federal Reserve interest rate decision on January 30 as a growing number of central bank officials drop the hawkish forward-guidance for monetary policy.

Image of daily change for major currencies

USD/JPY FLASH-CRASH REBOUND FUELS EXPANSION IN RETAIL SHORT EXPOSURE

Image of daily change for usdjpy rate

USD/JPY extends the advance from earlier this week even though the U.S. government remains partially shutdown, and the stickiness in the exchange rate may persist over the coming days as Treasury yields reflect a similar behavior.

However, the uncertainty surrounding fiscal policy may limit the appeal of the U.S. dollar as it curbs the outlook for growth and inflation, and it seems as though the Federal Open Market Committee (FOMC) will keep the benchmark interest rate on hold throughout the first-quarter of 2019 as an increasing number of Fed officials show a greater willingness to revert back to a wait-and-see approach. In turn, changes in risk sentiment may have a greater influence on USD/JPY in the interim as the FOMC tames bets for an imminent rate hike, but the flash crash appears to have shaken up retail interest as traders continue to fade the sharp rebound in the exchange rate.

Image of IG client sentiment for usdjpy

The IG Client Sentiment Report shows 55.3% of traders are now net-long USD/JPY compared to 56.9% at the end of last week, with the ratio of traders long to short at 1.24 to 1.1. In fact, traders have been net-long since December 18 when USD/JPY traded near 112.50 even though price has moved 4.0% lower since then. The number of traders net-long is 0.3% lower than yesterday and 8.8% higher from last week, while the number of traders net-short is 6.1% higher than yesterday and 19.3% higher from last week.

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Disclosure: Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment ...

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