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Retail and Institution Investors Clash on the Japanese Yen

April 16
11:07 2019

Sentiment Talking Points:

  • Retail investors seem to believe that the JPY will appreciate against the EUR
  • Traders continue to hold net-short positions on the EURJPY
  • Non-commercial investors anticipate the JPY will depreciate

Sentiment reports allows investors to look at the behavior of investors and to be able to better understand the market to take a position that could allow for potential returns.

When analyzing retail investors, we tend to notice certain biases effect their investment approach. Some behavioral biases may be gambler’s fallacy, the assumption that a loss today may be a win tomorrow or loss aversion, more importance placed on a gain, even if it is small, over losses.

In today’s sentiment report, we see that retail investors are purchasing more JPY, speculating that the JPY may appreciate against the GBP, EUR, and AUD. However, non-commercial investors, who tend to be trend followers are anticipating the opposite, per the CFTC report from last week, alongside the falling of the JPY implied volatility.

RETAIL INVESTORS ANTICIPATE THE JPY APPRECIATING AGAINST THE GBP

GBPJPY

GBPJPY: Retail trader data shows 44.4% of traders are net-long with the ratio of traders short to long at 1.25 to 1. The number of traders net-long is 19.1% higher than yesterday and 6.2% lower from last week, while the number of traders net-short is 15.2% higher than yesterday and 3.1% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPJPY prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBPJPY trading bias.

NET-SHORT EURJPY POSITION INCREASED BY 81.2% FROM LAST WEEK

EURJPY

EURJPY: Retail trader data shows 23.7% of traders are net-long with the ratio of traders short to long at 3.21 to 1. In fact, traders have remained net-short since Apr 08 when EURJPY traded near 125.473; price has moved 0.9% higher since then. The number of traders net-long is 29.2% higher than yesterday and 39.8% lower from last week, while the number of traders net-short is 11.6% higher than yesterday and 81.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURJPY prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURJPY trading bias.

TRADERS INCREASE THEIR NET-SHORT AUDJPY POSITION FROM LAST WEEK

AUDJPY

AUDJPY: Retail trader data shows 39.6% of traders are net-long with the ratio of traders short to long at 1.53 to 1. In fact, traders have remained net-short since Apr 03 when AUDJPY traded near 78.573; price has moved 2.3% higher since then. The number of traders net-long is 21.3% higher than yesterday and 2.4% higher from last week, while the number of traders net-short is 13.0% higher than yesterday and 26.9% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUDJPY prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUDJPY trading bias.

JPYUSD

Source: Bloomberg

When looking at currencies paired with the JPY, we notice that the IG Client Sentiment Index suggests a mixed trading bias. Retail traders still seem to be purchasing JPY in anticipation that the JPY will appreciate. However, retail trader behavior continues to mirror commercial hedger behavior (fading the predominant trend). When looking at non-commercial speculators, short positioning is starting to build up again. Given that non-commercial speculators are trend following, the implication here is that there is building anticipation for another period of Japanese Yen weakness

— Written by Nancy Pakbaz, CFA, Markets Writer

Follow Nancy on Twitter @NancyPakbazFX

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