Yen shorts continue to build despite the Japanese currency gaining, CFTC data show $JPY short positions are at their highest since 2014. Is the herd wrong?
All summer speculators have been selling yen, using it to fund the carry against the $AUDUSD via $AUDJPY and the $USDJPY. The trade has worked against the Aussie, the $USDJPY not so much. The US economy has not delivered thus far and this week we get the FOMC meeting which is expected to keep rates the same and perhaps add to the dovish tone from Yellen lately.
In this backdrop Japanese Yen shorts increased by another 15,000 in the current week, making it the largest short position since January 2014. Non-commercial speculators were higher for the 5th straight week with net contracts total to -126K. The percentage of long positions at 19% is the lowest level in 2 years. We saw the $USDJPY trade under 110.80 today after trading over 114.30 just around a week ago.
Image: Shorting the Yen Can be Hazardous
While the CFTC report is from July 18 and the yen has risen more, retail traders have a habit of adding to their positions to average their entry price. (Not what we call sound risk management)
Right now we are doing work around the Fibonacci retracement level from the recent high and June lows
JPY shorts punted on the Fed or the GDP report the day after being positve for the dollar. In the past week we have seen a more dovish Yellen and soft U.S. numbers. Not to mention the difficulties the Trump Presidency has had over the past few weeks. A dovish Fed and those large shorts could be troublesome for the $USDJPY.
Bigger picture? Here are the levels on a weekly basis to give perspective.