FxWirePro: Retail sentiment points to further downside in USD/JPY

USD/JPY likely to correct further,

• After failing to clear resistance around 112.2 area, the USD/JPY has corrected lower riding on a weaker U.S. dollar and risk aversion.
• The latest leg lower is credited to President Trump’s weekend tweet rebuking China over its attempt to renegotiate part of the agreement already reached upon as he announced that $200 billion worth of Chinese imports, which are currently subject to 10 percent tariffs would see the rate move up to 25 percent this Friday.
• Yen weakened last night as Chinese delegation instead of canceling the visit to Washington announced would be arriving for negotiations. The Chinese delegation is led by Chinese Vice Premier Liu He. However, as United States’ Trade representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin re-confirmed that tariffs would come into force on Friday, the yen is back in bid.

Trade idea:

• We at FxWirePro have long been suggesting that USD/JPY remains open to downside correction as long as the 112.2 resistance area holds.
• The retail sentiment has been pointing to such direction.

Retail sentiment:

• The sentiment reports from IG Markets, which is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting, points to declining bearish bets on the Japanese yen.
• IG markets’ retail positions data provide a glimpse to retail traders’ positions, which are largely used a contrarian indicator since retail positioning moves in the opposite direction to market movements.
• According to data from IG markets, 44 percent of the retail positions are short on USD/JPY, which gives the pair a bearish bias.

The focus for the week is on trade talks between the U.S. and China.