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

At the time of this writing, IG Client Sentiment (IGCS) is reporting 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.

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.

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USD/JPY Daily Chart

USD/JPY Chart Created in Trading View

S&P 500 Sentiment Outlook

According to IGCS at the time of this writing, 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.

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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.

S&P 500 Futures Daily Chart

S&P 500 Futures Chart Created in Trading View

*IG Client Sentiment Charts and Positioning Data Used from February 25 Report

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter