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Post-FOMC Aftershocks Test Limits Of Shorting Yen

FOREX

Initially modest USD/JPY sales accelerated over the Tokyo fix, sending the pair toward the Y135.00 mark as bears forced their way through Jul 22 low of Y135.72. Regional players digested the Fed's monetary policy decision and the subsequent press conference with Fed Chair Powell, who raised the prospect of a slower, more data-dependent rate hike path.

  • The discrepancy between the Fed's aggressively hawkish posturing and the BoJ's dovish resolve has been a key driver of the dramatic rally in USD/JPY over the past few months.
  • Post-FOMC musings lent some support to U.S. Tsys in Asia hours, promoting some light narrowing in the yield gap with Japan. This was partly unwound with Tsys paring gains as the session progressed.
  • Bloomberg trader sources flagged liquidation of long USD/JPY positions and said large sell stops were triggered around Jul 22 low of Y135.57, with offers seen toward the Y136.20/25 option strikes due to roll off later today.
  • USD/JPY 1-month risk reversal turned its tail, roughly halving yesterday's advance and moving away from a new weekly high printed in the Tokyo morning.
  • Demand for the yen was broad based, making the currency a clear G10 outperformer. Regional risk barometer AUD/JPY shed ~87 pips & EUR/JPY dropped more than 1 full figure to a two-week low.
  • The BBDXY index gave up and sank to its lowest point in more than three weeks, even as U.S. e-mini futures traded in the red.
  • A weak domestic retail sales print applied some light pressure to the Aussie dollar, but the impact was fairly short-lived.
  • Focus turns to German CPI as well as U.S. weekly jobless claims & advance GDP/PCE data. Comments are due form ECB Governing Council member Visco.

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