- USD/JPY has rallied by 7.7% from the 16 September 2024 low with three key risk events/data for this week (Japan’s flash PMI, Tokyo CPI & general election).
- The recent 4-week rally in the USD/JPY has displayed exhaustion conditions.
- Watch the 148.95 key intermediate support.
Since our last publication, the price movements of USD/JPY have extended its rally by another 3% from its 4 October low to print an intraday high of 150.32 last Thursday, 17 October, and cleared above 149.30 medium-term resistance as highlighted.
All in all, the Japanese yen has weakened by 7.7% against the US dollar in the past four weeks from 16 September to 17 October (low to high) with three key related risk events looming this week; Japan’s flash services and manufacturing PMIs for October out on Thursday, 24 October,  Tokyo’s CPI on Friday, 25 October, and the outcome of Japan’s snap general election held on Sunday, 27 October.
Right now, several technical analysis-related elements are suggesting potential signs of bullish exhaustion in the 4-week rally.
Bullish positioning has been reduced in the JPY currency futures market
Fig 1: Commitments of Trader large speculators’ net positioning in JPY futures for the week of 14 Oct 2024 (Source: Macro Micro, click to enlarge chart)
Based on the latest Commitments of Traders data for the week of 14 October 2024 (compiled by Macro Micro), the aggregate net bullish open positions of large speculators in the JPY futures market (after offsetting the aggregate positions of large commercial hedgers) are at +70,749 contracts (net long), a decline of 50% in the past three weeks after it hit a 5-year high of +143,519 contracts for the week of 23 September (see Fig 1).
Net open large speculative positioning flows (primarily from hedge funds) are contrarian in nature which suggests that a relatively high level of net positioning may see an opposite reaction in price actions if related data or news flows disappoint.
Given that large speculative market participants have trimmed their net bullish open positions in the JPY currency futures market, the risk of further profit-taking activities (sell JPY, buy US dollar) has been reduced if the materialized related data or news flow does not support a bullish JPY narrative.
In contrast, if such data and news flow support a positive JPY narrative, large speculators may rebuild their net long position in the JPY futures market (buy JPY, sell US dollar) which in turn may lead to a bearish reversal in the USD/JPY.
Hovering below the 200-day moving average with exhaustion elements
Fig 2: USD/JPY medium-term trend as of 21 Oct 2024 (Source: TradingView, click to enlarge chart)
The 4-week up move seen in the USD/JPY from its 16 September low of 139.58 has almost reached the key 200-day moving average that coincides closely with the 151.95 long-term pivotal resistance.
Since 8 October, the price actions of USD/JPY have taken on the form of an impending bearish “Ascending Wedge” configuration coupled with a weekly bearish “Shooting Star” candlestick pattern for the week of 14 October (see Fig 2).
Watch the 148.95 key intermediate support (close to the lower boundary of the “Ascending Wedge), and a break below it may trigger a potential bearish reversal scenario on the USD/JPY to expose the medium-term supports of 146.90 and 144.80.
On the flip side, a clearance with a daily close above 151.95 invalidates the bearish scenario for the next resistance to come in at 154.70 in the first step.
