There's Looming Potential For JPY Strength

Recent political instability and a future of “unlimited” monetary easing has led the Japanese yen lower against the pound sterling in the last week or so. The move has surprised many, and has come so suddenly that recent consolidation is hinting at a potential correction – even as the longer term technical picture remains yen bearish. The most recent indications have surfaced from the CFTC’s weekly figures.

According to the most recent weekly sentiment report by the US Commodity Futures Trading Commission, the deterioration in the yen’s fundamental outlook has bolstered the highest pace of bearish yen plays in the last 4 years. Details of the survey show that investors piled on short yen positions in the period ending November 27th, with a net sell of 79,466 contracts. This is an increase of about 55% from the previous week and leaves the market net short of about $12 billion worth of yen. The new favorite market sell, yen bearish plays now surpass the almost net $11 billion in Euro shorts seen in the same period.

Confirming what most of us have already seen (widespread JPY bearishness), the recent developments also indicate a potential for the spot rate to correct temporarily. This is reflective in the fact that yen short sellers now outnumber buyers in an extreme 4 to 1 position.

With long term fundamental factors still intact, especially with a likely Shinzo Abe win in two weeks, any correction should be temporary in nature.

The notion compliments the technical picture in the GBPJPY cross pair. With technical resistance at 133.43 looming ahead for the spot price, a failure to overtake the figure would prompt a retest of initial resistance at 127.61. Incidentally, the upside barrier is being reinforced by 134.53 38.2% fib resistance. Technical oscillators are bolstering the notion – showing overbought signals.

GBJPY ChartSource:  FXTrek Intellicharts
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