Post-Fed USD/JPY Rate Selloff Fuels Shift In Retail Sentiment

USD/JPY remains under pressure even as the Federal Reserve delivers a 25bp rate-hike at its last meeting for 2018, and the pickup in volatility fuels a shift in retail sentiment, with recent price action raising the risk for a further decline in the exchange rate as it extends the series of lower highs & lows from earlier this week.

Image of daily change for major currencies


Image of daily change for usdjpy

Fresh remarks from the Federal Open Market Committee (FOMC) suggest the central bank has no intentions of abandoning the hawkish forward-guidance for monetary policy as ‘it is more likely that the economy will grow in a way that will call for two interest rate increases over the course of next year.’

In turn, Chairman Jerome Powell & Co. may continue to prepare U.S. households and businesses for higher borrowing costs as ‘the projections of Committee participants released today show growth continuing at healthy levels, the unemployment rate falling a bit further next year, and inflation remaining near 2 percent,’ but it appears as though the Fed is approaching the end of the hiking-cycle as officials ‘see growth moderating ahead’.

Image of fed fund futures

Even though the updated projections from Chairman Powell & Co. suggest the central bank will continue to normalize monetary policy in 2019, Fed Fund Futures reflect expectations for a wait-and-see approach as the FOMC is anticipated to stay on hold throughout the first half of the year. As a result, USD/JPY appears to be tracking the decline in U.S. Treasury yields as both of instruments slip to fresh monthly lows, and failure to preserve the opening range for December keeps the downside targets for the dollar-yen exchange rate especially as the pickup in volatility fuels the recent shift in retail sentiment.

Image of IG client sentiment for usdjpy

The IG Client Sentiment Report shows 58.1%of traders are now net-long USD/JPY compared 55.9% earlier this week, with the ratio of traders long to short at 1.39 to 1. In fact, the percentage of traders net-long is now its highest since October 16 when USD/JPY traded near 112.30. The number of traders net-long is 1.9% higher than yesterday and 33.0% higher from last week, while the number of traders net-short is 10.3% lower than yesterday and 34.8% lower 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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