With Japan’s fiscal year end now passed, we can begin to focus with more confidence on the COT index for the Japanese yen.   However, as always we need to bear in mind that the COT index must be viewed as a sentiment indicator and not a timing indicator and cannot always be correlated with the spot market.   All the index is telling us at present is that the commercials are continuing to build long futures positions in the Japanese Yen and that this will translate into Yen strength at some point in the spot forex market.

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The most meaningful aspect of the COT index for the Japanese Yen was the shift 3 weeks ago by commercial contract holders from being net short at the point to the current situation where they are net long by some significant margin.   However, as this has happened towards the end of Japan’s fiscal year (ie 31st March) we should really wait a few more weeks to see if this sentiment is likely to continue.  In the spot market there is an increasing struggle at the moment with the 98.50 level providing strong resistance to any move higher by the dollar.

The COT data chart for the Japanese Yen paints an interesting picture especially as we are approaching Japan’s year end.   In the last 2 weeks we have seen the index approach an extreme with values below 5 which always tend to suggest a turning point based on the commercial traders’ futures contracts and this would suggest that we are about to see a strengthening of the Japanese Yen in the spot currency markets and in particular in the dollar yen pair.  Whilst we have to be careful not to use the COT index as a timing signal it does provide excellent background information to the direction in which to trade in the medium to long term.  All the latest fundamental use can now be found in the economic calendar.