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Surging Core Yields Drive Weakness

JPY

USD/JPY touched around 135.50 during the NY session, largely following the trajectory of US yields. More so the back end (10yr) rather than front end (2yr) in terms of intra-day moves. We currently hold above 135.10 in early trade today, up a touch from NY closing levels (135.05).

  • JPY was generally an underperformer overnight, with the surge in core yields (post the UK CPI beat) leaving the currency vulnerable on a cross basis. EUR/JPY got close to 138.00, we are back to 137.50 now (+0.73% in the past 24 hours). Note the 100-day MA comes in at 138.18.
  • Not helping at the margin was yesterday's wider than expected trade deficit. To recap, imports YoY growth was +47.2%, with an adjusted trade deficit of -2133.3bn Yen (a fresh record wide).
  • The focus today will be on weekly Japan investment flow data (to August 12th), which is the main data print.
  • The early tone in US equity futures is a touch softer, following losses overnight. This hasn't aided the yen in the first part of today's session, but could be a focus point as the session progresses (particularly if US fixed incomes sees somewhat of a bid).
  • From a technical standpoint, note the 50-day MA comes is at 135.41. Support on the downside may be evident at 134.80 (the lows from overnight).
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