USD/JPY Bullish, NZD/USD Bearish Contrarian Outlook Ahead of Fed

US Dollar, Fed, Japanese Yen, New Zealand Dollar IG Client Sentiment – Talking Points

US Dollar sees mixed outlooks from IG Client Sentiment ahead of the Fed
USD/JPY positioning hints uptrend resumption, contrasting the technicals
NZD/USD sentiment and technical analysis outlook favoring the downside

Join me on Wednesdays at 00:00 GMT as I cover what IG Client Sentiment is saying about the prevailing trends in financial markets!

In this week’s webinar, I dived into the IG Client Sentiment outlook for the US Dollar ahead of the Fed interest rate decision and press conference with Chair Jerome Powell. As noted in the crude oil fundamental outlook, a combination of disappointing US economic data and a less-dovish central bank can dent risk appetite. This may boost the anti-risk Japanese Yen at the expense of the sentiment-linked New Zealand Dollar.

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USD/JPY Sentiment Outlook – Bullish

Since the end of August, the US Dollar has lost over 4.2 percent in value against the Japanese Yen. Accompanying the climb in USD/JPY has been fading upside positioning. Current readings in IG Client Sentiment show that about 47.52 percent of traders in this pair are net long, down from a peak of roughly 75% over two months ago.

Taking a look at the latest report from October 29, traders are further net-short than yesterday and from the prior week.The combination of current sentiment and recent changes offers a stronger USD/JPY-bullish contrarian trading bias. As more traders anticipate and bet on where the US Dollar could top against the Yen, this psychological dynamic may result in further gains in the former against the latter. Technical signals hint otherwise however.

USD/JPY is showing signs of a top on the daily chart. A Rising Wedge candlestick formation opens the door to reversing the recent uptrend given a close under the floor of the pattern. On top of this, negative RSI divergence and a Spinning Top undermine recent upside progress. The former shows ebbing uptrend momentum while the latter indicates indecision. These may pave the way for a drop to wedge floor.

USD/JPY Daily Chart

USD/JPY Chart Created in Trading View

NZD/USD Sentiment Outlook – Bearish

Versus the New Zealand Dollar, the US Dollar could be looking at gains in the near-term. This is despite recent trends in NZD/USD positioning. Since the beginning of October, Kiwi net-long bets have been fading from roughly 78 percent bias to now around 60%. Since then, the currency pair has climbed almost 2.4 percent.

But, the latest IG Client Sentiment Report reveals that traders are further net-long than yesterday and from last week.The combination of current sentiment and recent changes gives a stronger NZD/USD-bearish contrarian trading bias. This is because net-long positioning has been increasing at a faster pace than those taking bets in the opposite direction. Technical analysis seems to support this contrarian outlook.

This is because NZD/USD has been making recent downside progress in the aftermath of a Bearish Engulfing candlestick. This confirmation opens the door to a reversal of the near-term uptrend from the beginning of October. Extending declines does entail taking out what could be a potential rising support channel – blue area on the chart below. A daily close under this exposes the current 2019 low.