At least from the perspective of the COT that is...

Since a near square position in the first week of May, the amount of JPY shorts has increased to 86K short this week (as of Tuesday's close). The chart below shows the net non commercial position in the JPY. This is assumed to be a proxy for the speculative position. As the chart shows, that decline is relatively speaking, changing at a record clip (over the last year at least).

So what has the USDJPY done over the same period?

The red box in the weekly chart below shows the movement in the USDJPY since the beginning of May when the square position from the COT started to get more JPY bearish.

As the chart clearly shows, the USDJPY has indeed moved higher (it took a week or two to get going). When the USDJPY moves higher, the JPY gets weaker. So the speculators profited from the move higher in the USDJPY, and have also gotten more short JPY as the trend has continued.

Well done traders!

At some point, it is thought the market gets offsides and we will get a short covering in the JPY (the USDJPY will go down). That is the theory at least.

Caveats with this analysis is:

  • There may be positions not in the futures market (i.e. with your neighborhood broker) that could tell a different story).
  • The data is also a snapshot from Tuesday. It is Friday and that position may be totally different.

Nevertheless, we will give a big shout out to the JPY shorts in the COT report, and let them have their day in the sun for attacking the currency trend.

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