FxWirePro: Sentiment suggests USD/JPY forming base

Yen rally might be coming to an end,

• Risk sentiment returned to the market thanks to some optimistic comments from U.S. President Donald Trump and Chinese officials which helped to diffuse some of the tensions stemming from Sino-American trade dispute.
• USD/JPY has declined steadily after failing to breach to 112.2 resistance area, and thanks to an escalation in the Sino-American trade dispute, where President Trump hiked tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent, and China responded with a hike in tariffs on $60 billion, declined sharply to as low as 109 area.

However, it has been struggling to break lower as risk sentiment returned.

The retail sentiment suggests that USD/JPY could be in the process of forming a bottom. According to data from IG markets, 66 percent of the retail positions are long on USD/JPY, which gives the pair a bearish bias. However, the percent of long positions have declined from 75 percent, and that is a sign of bottom formation.