USD/JPY Retail Longs Surge Even As Bullish Momentum Abates

USD/JPY fails to extend the series of lower highs & lows from the previous week, with the recent rebound sparking a further adjustment in retail interest, but developments in the Relative Strength Index (RSI) warn of a further decline in the exchange rate as the oscillator threatens the bullish formation from earlier this year.

Image of daily change for major currencies


Image of daily change for usdjpy rate

The pullback from the monthly-high (112.14) appears to be sputtering even though the U.S. Non-Farm Payrolls (NFP) report saps bets for a Federal Reserve rate-hike, and USD/JPY may continue to consolidate ahead of the next interest rate decision on March 20 as the central bank is widely anticipated to retain the current policy.

(Click on image to enlarge)

Image of fed interest rate forecast

In turn, the updates to the Summary of Economic Projections (SEP) may sway foreign exchange markets as the central bank gradually alters the forward-guidance for monetary policy, and it remains to be seen if Fed officials will continue to forecast a longer-run interest rate of 2.75% to 3.00% as the Federal Open Market Committee (FOMC) appears to be abandoning the hiking-cycle.

Keep in mind, the shift in the forward-guidance comes as Fed officials warn ‘that some risks to the downside had increased, including the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market condition,’ and the weakening outlook for the world economy may largely benefit the Japanese Yen as it drags on carry-trade interest.

Image of IG client sentiment for usdjpy rate

Nevertheless, updates to IG Client Sentiment Report reveal a further adjustment in retail interest as 48.0% of traders are now net-long USD/JPY, with the ratio of traders short to long at 1.08 to 1. Traders have been net-short since February 27 when USD/JPY traded near 110.60, with the ratio slipping to an extreme reading earlier this month, but the IG Client Sentiment index has recovered as the exchange rate continues to fall back from the monthly-low (112.14).

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