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JPY Weakness Persisting As US CPI Data Approaches

  • With market participants likely focused on US inflation data on Thursday, the USD index has continued to trade in a narrow range this week, moderately dipping during today’s session. However, JPY volatility remains notable with another 150 -pip range for USDJPY, maintaining an upward bias that ahs been present since the turn of the year.
  • The persistent JPY weakness through the Wednesday session, twinned with EUR/USD demand into the WMR fix has resulted in a substantial 1.15% rally for EUR/JPY, a move that's prompted new YTD highs and a crack above the 50-dma of 159.32 in the process. Retracement levels are next up, with 160.07 and 161.69 marking the 61.8% and 76.4% retracement of the Nov 16 - Dec 7 bear leg. Today's rally puts the cross well clear of Y156.00, which marks the surveyed analyst consensus for Q1 for EUR/JPY.
  • Near-term vols for EUR/JPY remain supported, but have drifted through the turn of the year. 3m implied trades either side of 9.5 points, keeping implied just below the rolling 12m average. The slight fade in vols has worked in favour of EUR/JPY call vol, as 3m risk reversals inch to the best level since the mid-Dec pullback, at 1.4 points in favour of puts.
  • Elsewhere, GBP also marginally outperforms, and continues to be the strongest G10 currency against the greenback in 2024. With the trend outlook remaining bullish, attention is on resistance at 1.2827, the Dec 28 high and bull trigger. Clearance of this level would confirm a resumption of the uptrend and open 1.2881, a Fibonacci retracement point. Initial firm support lies at 1.2611, Jan 2 low.
  • All focus on tomorrow’s US CPI report where consensus puts core CPI inflation at 0.3% M/M in December, with risk seen to the downside.

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