FXStreet reports that USD/JPY has climbed from just below the 104.00-level at the end of January to a fresh intraday high of 109.23 which has brought the pair back to within a touching distance of the high from last June of 109.85. Lee Hardman, a currency analyst at MUFG Bank, notes that Leveraged Funds start to build short JPY positions and that the USD/JPY pair is most overbought since late in 2016, which leaves room for a correction lower.
“The sharp reversal for USD/JPY has triggered a shake-up in yen positioning in recent weeks. According to the latest IMM report, Leveraged Funds have now flipped to holding short yen positions totalling -6,528 contracts in the week ending the 2nd March after holding long positions totalling 8,376 contracts a couple of weeks ago. It is the largest short yen position since the week ending the 20th October of last year.”
“According to technical indicators such as the RSI, USD/JPY is now the most overbought since late in 2016. A similar setup is also evident for the 10-year US Treasury yield where the RSI recently reached its most overbought levels since late 2016.”
“The historical precedent suggests that USD/JPY is likely to correct lower from overbought levels once the sharp move higher in long-term US yields loses upward momentum.”
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