Yen Outlook Bullish, USD/JPY May Fall as S&P 500 Sees Dip Buying

February 25, 2020

Yen Outlook Bullish, USD/JPY May Fall as S&P 500 Sees Dip Buying

JAPANESE YEN, USD/JPY, S&P 500, CORONAVIRUS, IG CLIENT SENTIMENT - TALKING POINTS

Coronavirus fears plunged S&P 500 as the anti-risk Japanese Yen rose
Trader positioning signals hint there may be more room to go from here
USD/JPY may fall to support as S&P outlook risks turning more bearish

HOW CAN TRADER POSITIONING IMPACT THE OUTLOOK FOR THE JAPANESE YEN AND S&P 500?

In this week’s session, I discussed the outlook for the Japanese Yen against the US Dollar and Australian Dollar while covering a broad sweep of the S&P 500. After the latter experienced some of its worst performance since 2018, the anti-risk JPY gained aggressively as fears on the coronavirus increased. From here, what do traders’ buy/sell bets have to say about the USD/JPY and S&P 500 outlook?

USD/JPY SENTIMENT OUTLOOK

Reporting say that about 49.69% of traders are net-long USD/JPY. Traders are less net short than yesterday and compared with last week. Recent changes in sentiment warn that USD/JPY may soon reverse lower despite traders remaining net short. From a psychological standpoint, this would speak to an increasing amount of participants attempting to buy the dip.

Yen Outlook Bullish, USD/JPY May Fall as S&P 500 Sees Dip Buying

USD/JPY TECHNICAL ANALYSIS

After failing to clear highs from 2019, USD/JPY has turned sharply lower towards rising support from August – red line on the chart below. Clearing 110.29 would pave the way for a revisit of 109.55 along the path towards the rising trend line. If the latter is taken out, that could shift the medium-term outlook to bearish as prices could reverse the key uptrend from the latter half of last year.

USD/JPY DAILY CHART

USD/JPY Chart

S&P 500 SENTIMENT OUTLOOK

Roughly 42.32% of traders are net-long the S&P 500. That is up from just under a 25% upside bias from last week. Since then, prices have declined over 7.6%. Recent changes in sentiment warn that the current US 500 price trend may soon reverse lower despite the fact that traders remain net-short. That would represent a rising share of participants attempting to pick the bottom

S&P 500 TECHNICAL ANALYSIS

Despite near-term declines, the medium-term technical picture for the S&P 500 arguably remains bullish. Taking a look at futures, rising support from 2018 caught Tuesday’s aggressive selloff – blue lines on the chart below. A close to the downside followed by confirmation risks shifting the technical outlook to bearish from here. That may be the case if signals from trader positioning transpire.