USD/JPY Rally Vulnerable Ahead Of U.S. CPI/Retail Sales

USD/JPY Daily

USD/JPY Daily Chart

Technical Outlook: USD/JPY responded to a key resistance range this week at 114.37/60. The pair is loaded with technical considerations into the 115-handle which include the 100% extension of the April rally, the 61.8% retracement of the 2017 range and the May high.

The pullback is in focus with the broader outlook weighted to the topside while above the highlighted support confluence around 111.57/79 where the 100 & 200-day moving averages converges on the June opening range highs. A breach higher still has to contend with key resistance targets at 115.52 & 116.08 before we the next big leg higher.

USD/JPY 240min

USD/JPY 240min Chart

Notes: A closer look at the 240min chart highlights a near-term ascending pitchfork formation carried over from last month. The decline is now approaching confluence support at the lower median-line parallel / 112.73– A break below this threshold would suggest a larger correction is underway with such a scenario risking a drop into 112.32 & more critical support at 111.57/79 (broader bullish invalidation and an area of interest for exhaustion / long-entries).

Interim resistance stands a 113.85 backed by the weekly highs. From a trading standpoint, I’ll be looking to see if the median-line offers resistance on a rebound with the advance off the June lows at risk while below. Added caution is warranted heading into the close of the week with the release of the U.S. Consumer Price Index (CPI) & Retail Sales figures likely to fuel increased volatility in the USD crosses.

USD/JPY IG Sentiment

A summary of IG Client Sentiment shows traders are net-long USD/JPY- the ratio stands at +1.03 (50.8% of traders are long) – weak bearish / neutral reading

Long positions are 5.2% higher than yesterday but 4.0% lower from last week

Short positions are 7.3% lower than yesterday and 3.3% lower from last week

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. That said, positioning is more net-long than yesterday but less net-long from last week and the combination of current sentiment gives us a further mixed USD/JPY trading bias.

Bottom line: Sentiment is coming off extremes last seen in May (which was the last top in USD/JPY) and continues to highlight the near-term risk to this advance.