USD/JPY Rate Risks Larger Flash-Crash Correction On RSI Signal

JAPANESE YEN TALKING POINTS

USD/JPY looks poised for a larger rebound following the currency market flash crash as the exchange rate carves a series of higher highs & lows, while the Relative Strength Index (RSI) bounces back from oversold territory.

USD/JPY Rate Risks Larger Flash-Crash Correction on RSI Signal

USD/JPY RATE RISKS LARGER FLASH-CRASH CORRECTION ON RSI SIGNAL

USD/JPY Rate Risks Larger Flash-Crash Correction on RSI Signal

USD/JPY may continue to catch a bid ahead of the Federal Open Market Committee (FOMC) Minutes as U.S. President Donald Trump tweets that ‘talks with China are going very well,’ and the mild improvement in risk sentiment may keep the dollar-yen exchange rate afloat as U.S. Treasury yields highlight a similar dynamic.

Efforts to avoid a U.S.-China trade war should continue to shore up investor confidence especially as the People’s Bank of China (PBoC) appears to be on track to reduce the Reserve Requirement Ratio (RRR) ahead of the lunar New Year, and the FOMC Minutes may do little to influence the near-term outlook for USD/JPY as the central bank shows a greater willingness to adopt a wait-and-see approach in 2019.

USD/JPY Rate Risks Larger Flash-Crash Correction on RSI Signal

As a result, Fed Fund Futures may continue to show the FOMC on hold throughout the first-half of the year, but the ongoing adjustment in the Fed’s balance sheet offers a bullish argument for USD/JPY as the Bank of Japan (BoJ) remains in no rush to move away from the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

With that said, the Fed’s quantitative tightening (QT) may provide USD/JPY with a fundamental floor even though the narrowing balance sheet drags on risk-taking behavior, but the flash crash appears to be shaking up retail interest as traders fade the sharp rebound in the exchange rate.

usdjpy ig client sentiment index

The IG Client Sentiment Report shows 60.2% of traders are now net-long USD/JPY compared to 64.6% last week, with the ratio of traders long to short at 1.51 to 1.The number of traders net-long is 1.8% lower than yesterday and 10.3% lower from last week, while the number of traders net-short is 5.7% lower than yesterday and 23.3% 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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