Bullish Engulfing Pattern Opens Way For Bullish Move In USD/JPY

The post-U.S. CPI pressure on U.S. Tsys evident on Wednesday spilled over into U.S. Tsy futures trade on Thursday (cash Tsys were closed on the observance of the Veterans Day holiday in the U.S.), supporting the broader USD, pushing USD/JPY back above Y114.00 in the process. The rate last deals at Y114.05, essentially flat on the day. One desk notes that Japanese exporters and retail accounts acted as a potential cap on the rate on Thursday, while the $2.2bn of FX options with strikes of Y113.90-114.00 rolling off at Friday's NY cut may have acted as a bit of a magnet. There isn't much in the way of tier 1 data to impact the broader risk backdrop on Friday (U.S. UoM inflation expectations will be scrutinised), with the cash Tsy market dynamics after the aforementioned 24-hour closure set to shape price action in the pair during Tokyo dealing.

• Our technical analyst notes that USD/JPY worked against the short-term softer tone Wednesday. The strong recovery signals the potential end of the recent corrective pullback with Wednesday's candle pattern appearing to be a bullish engulfing reversal. If correct, this pattern signals scope for a climb towards key resistance at the Oct 20 high (Y114.70). A break would confirm a resumption of the primary uptrend. Key short-term support has been defined at the Nov 9 low (Y112.73).