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Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

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Technical Forecast for the Japanese Yen: Neutral

  • The Japanese Yen has been outperforming its contemporaries as global risk appetite has chilled in recent days, thanks in part to surging COVID-19 cases in Europe and the United States.
  • More JPY strength may be ahead in the coming days, but its performance may not be uniform across the board. The first week of November brings event risk from all corners of the globe, potentially leading to disparate performances within the JPY-complex itself.
  • The IG Client Sentiment Index suggests that the JPY-crosses have a mixed trading bias.
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Japanese Yen Tracking Risk Trends

The Japanese Yen had a strong week to finish out October, bootstrapping the weak performance endured by global equity markets in recent days. With COVID-19 outbreaks spiking in Europe and the United States, investors have become markedly more risk averse in the run-up to the November 3 US presidential election. As a low yielding, safe haven currency, the Japanese Yen does well during times of market duress. To this end, on Wednesday, October 28, the 5-day correlation between JPY/USD and the S&P 500 hit +0.82.

Forex Economic Calendar Week Ahead

While Japanese economic data takes a backseat in the coming week, event risk runs high for nearly every other major currency covered by DailyFX Research. Beyond the US presidential elections on November 3, this week also brings about the November Federal Reserve policy meeting on Wednesday, November 4, and the October US nonfarm payrolls report on Friday, November 6. Needless to say, this appear to be a volatile week ahead for USD/JPY rates.

Other major JPY-crosses are in focus as well. The November Reserve Bank of Australia policy meeting and the Q3’20 New Zealand jobs report on Tuesday, November 3 will bring volatility to AUD/JPY and NZD/JPY rates. GBP/JPY rates will be in focus on Thursday, November 5 when the Bank of England’s Monetary Policy Committee meets for the November rate decision. And on Friday, the release of the October Canada jobs report will see CAD/JPY rates get their turn in the barrel.

USD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (November 2019 to November 2020) (CHART 1)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

USD/JPY rates have started to crack through symmetrical triangle support dating back to the March and September swing lows, although price action in the pair since early-July suggests that a more near-term symmetrical triangle may be constraining a breakdown. Much like price action in August and September, USD/JPY rates have once again found support at the 23.6% Fibonacci retracement from the 2018 high/2020 low range.

Bearish momentum has been accelerating in recent weeks, even as USD/JPY turned higher at the end of the week. USD/JPY rates remain below the daily 5-, 8-, 13-, and 21-EMA envelope, while daily MACD is trending lower below its signal line. However, Slow Stochastics are rising from oversold condition; a fly in the ointment. To this end, while the conditions for a bearish move lower are set, USD/JPY rates have reach the necessary trigger point for great confidence in accelerated losses: 103.79, the 23.6% Fibonacci retracement of the 2020 high/low range.

IG Client Sentiment Index: USD/JPY RATE Forecast (October 30, 2020) (Chart 2)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

USD/JPY: Retail trader data shows 72.96% of traders are net-long with the ratio of traders long to short at 2.70 to 1. The number of traders net-long is 8.32% lower than yesterday and 5.61% higher from last week, while the number of traders net-short is 7.47% lower than yesterday and 18.99% 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.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.

EUR/JPY RATE TECHNICAL ANALYSIS: Daily CHART (November 2019 to November 2020) (CHART 3)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

The EUR/JPY rate daily chart has turned bearish, insofar as the rising trendline from the May and September swing lows has been broken and bearish momentum has accelerated aggressively. EUR/JPY rates are below the daily 5-, 8-, 13-, and 21-EMA envelope and the differential (% of EUR/JPY rate) between the 5-EMA and the spot close is increasing. Daily MACD is trending lower below its signal line and Slow Stochastics are nestled in oversold condition. More losses appear to be on the horizon, and the area near the July swing low around 120.25 appears to be the closest nearby support region.

IG Client Sentiment Index: EUR/JPY Rate Forecast (October 30, 2020) (Chart 4)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

EUR/JPY: Retail trader data shows 51.88% of traders are net-long with the ratio of traders long to short at 1.08 to 1. The number of traders net-long is 7.32% lower than yesterday and 19.69% higher from last week, while the number of traders net-short is 17.78% lower than yesterday and 17.06% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/JPY prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bearish contrarian trading bias.

GBP/JPY Technical Analysis: Daily Rate Chart (November 2019 to November 2020) (Chart 5)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

GBP/JPY rates are more like USD/JPY than EUR/JPY, insofar as like USD/JPY, the uptrend from the March and September swing lows has not been broken yet. GBP/JPY rates are below the daily 5-, 8-, 13-, and 21-EMA envelope, while daily MACD is trending lower below its signal line. Similarly, Slow Stochastics are nearing oversold condition. A move below 134.48, the 50% Fibonacci retracement of the 2020 high/low range, would also constitute a break of the March to September uptrend, increasing the likelihood of a deeper retracement in the coming weeks. For now, however, more patience is required.

IG Client Sentiment Index: GBP/JPY Rate Forecast (October 30, 2020) (Chart 6)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

GBP/JPY: Retail trader data shows 46.20% of traders are net-long with the ratio of traders short to long at 1.16 to 1. The number of traders net-long is 13.56% lower than yesterday and 3.41% lower from last week, while the number of traders net-short is 3.57% lower than yesterday and 9.17% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise.

Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/JPY trading bias.

AUD/JPY Technical Analysis: Daily Rate Chart (November 2019 to November 2020) (Chart 7)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

AUD/JPY rates find themselves in a situation akin to EUR/JPY rates, having already made a breakdown through key support dating back to the pandemic swing lows in the spring. In the second half of October, AUD/JPY rates have seen losses accelerate below the rising trendline from the March and September swing lows, and continue to push below the daily 5-, 8-, 13-, and 21-EMA envelope. Daily MACD is trending lower below its signal line and Slow Stochastics are holding in oversold condition. The descending trendline from the January and December 2018 highs may be coming into focus around 72.50 in the coming days.

IG Client Sentiment Index: AUD/JPY Rate Forecast (October 30, 2020) (Chart 8)

Weekly Japanese Yen Technical Forecast: JPY Gains Steam as Risk Appetite Chills

AUD/JPY: Retail trader data shows 48.49% of traders are net-long with the ratio of traders short to long at 1.06 to 1. The number of traders net-long is 4.57% lower than yesterday and 23.44% lower from last week, while the number of traders net-short is 8.64% lower than yesterday and 7.25% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/JPY trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist