Forex trading crowds have aggressively bought into recent US Dollar (ticker: USDOLLAR) declines against the Japanese Yen, and the sharp swing in sentiment warns that the pair could continue its short-term declines. We recently wrote that the USD likely set a significant bottom versus the JPY on clearly one-sided sentiment, but its more recent tumbles gives us pause in the timing of USDJPY strength.
Critical USDJPY support at ¥77.96 will likely be the “line in the sand” that determines our shorter-term trading bias, but yesterday’s nosedive on the US Federal Reserve’s strong hints at fresh Quantitative Easing measures (QE3) may stack the odds in favor of further breakdowns.
Indeed, the key US 10-Year Treasury Yield fell sharply off of its 200-day SMA on the Fed announcement. The correlation between the Yen and Treasury yields trades near record strength, and sharp moves in the 10-year bode poorly for the yield-sensitive USDJPY.
How do we interpret and trade with the SSI? Watch an FXCM Expo Presentation that explains the SSI.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
To receive the Speculative Sentiment Index and other reports from this author via e-mail, send a message with subject line “Distribution List” to firstname.lastname@example.org; Contact David via Twitter at http://www.twitter.com/DRodriguezFX
Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.