For the JPY specifically, we note a couple of other factors that suggest its sell-off has gone far enough—and might set the stage for a rebound. Firstly, since early March, the USD has advanced for nine consecutive weeks. Our informal “rule of thumb” is that 10-12 weeks of one-way movement in major currencies is typically about as far a move can be sustained before a consolidation or reversal sets in. Basically, the JPY is heavily oversold. Secondly, market positioning is bearish on the JPY and has been for some time. IMM data show speculative accounts are holding a significant net JPY short in overall terms (101k contracts) which is near the “peak” bearishness seen in the JPY over the past few years. Technically, price action is (tentatively) signaling a short-term top may be developing at 131.25/35 and trend support off the March/April bull run at 129.75 is under threat. A break under 129.75 should see USD losses extend a little more towards last week’s low (and 131.25 double top trigger) at 128.65. USD losses below here target 126. We note there are potentially JPY-bullish signals developing on some key crosses; EURJPY appears to have peaked near 140 last month (bearish weekly “dark cloud cover” candle) while CADJPY reflects a bearish weekly “doji” candle forming at the end of April, as CAD gains stall above 100. AUDJPY weekly price signals show a bearish “shooting star” around the AUD’s test above JPY95 in late April. These signals add weight to the notion that USDJPY’s bull move may be losing momentum and is poised for a correction. - Scotiabank FX Strategy
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