Technical Tools

Support and resistance (S/R). Price levels, trendlines and Fibonacci retracements. Price action, candlestick and chart patterns. Simple moving averages (SMA). Commitments of traders (COT) indicator, which displays speculative positioning in FX futures market, used as a proxy for speculative positioning in spot FX market.

Weekly Chart


The pair rallied more than 1800 pips in Q4 2016 during so-called Trump trade. It effectively recouped most of that year's losses and briefly returned to the 2015 range between 116 and 126. However, a correction ensued that has so far taken the pair to the levels below 108.

Speculative Positioning

Net position of non-commercial traders in Japanese Yen futures flipped to the short side in December 2016 after it was long for almost a year. That was largely due to new bears (93.8K), while bulls (42.4K) liquidated about a half of their exposure. The net short position now stands at 51.3K.

Daily Chart


The pair has been trading sideways since the election-inspired rally topped out at 118.65. It will have to trade beyond either 108 or 115 on a sustained basis to signal the end of the current range-bound regime. It looks to be on the way towards the upper extreme.

Fundamentals

Yield curve control has proved to be a powerful policy from the BOJ but is questionable whether such policy is feasible over longer term. Fed hiked federal funds rate in December, March and June, and will start reducing its balance sheet in October. The next hike from them may come as soon as in December.

Prediction

Taking into account all the above-mentioned factors, I expect the pair to be trading near 113.25 towards the end of the forecast period which will conclude on the 1st of November, 2017, at 12:00 GMT. Ideally, the pair will follow the expected price path as outlined on the charts.
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