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Flurry of Short-Covering Sees USD/JPY Undergo Corrective Bounce

FOREX
  • JPY is sliding against all others in G10 as the BoJ worked against market pressure to abandon their flagship yield curve control policy. Implied vols were well bid into the event, pricing in a near 300 pip response in USD/JPY. This came to fruition, with a flurry of short-covering driving USD/JPY north of 131.50 - a move that's in the process of being faded as markets head through to the NY crossover.
  • The USD/JPY rally stopped short of the 20-day EMA, which provided effective resistance and suggests the over-arching downtrend remains intact for now.
  • USD strength followed the BoJ decision initially, but this has similarly reversed in favour of the EUR. Upside was bolstered by an appearance from ECB's Villeroy, who talked against recent sources reports that suggested the bank will imminently step down the pace of tightening. EUR/USD remains bid, showing above yesterday's highs to print at 1.0869 in recent trade.
  • CHF also trades well, and is firmer against the EUR for a fourth consecutive session. Price has now dipped back below parity, making for a 150 pip fade off last week's best levels.
  • US PPI data should be the focus for the Wednesday session, with markets expecting PPI to slip to 6.8% on the year, down from 7.4% on a final demand basis. Industrial production and the NAHB Housing Markets Index also cross. The speakers slate could also provide some interest, as Fed's Bostic, Harker and Logan appear. The Fed also release their latest Beige Book assessment.
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