USD/JPY Bulls Look For A Clean Break Above Y112.00

The recent U.S. Tsy yield dynamic, coupled with the potential for relatively aggressive fiscal plans under a Kishida-led government in Japan, has USD/JPY testing Y112.00 after a brief show above on Wednesday. Expect these matters to continue to sit front and centre for the cross, with broader equity market gyrations also falling into the mix.

• Our technical analyst notes that USD/JPY strengthened further Wednesday, reinforcing a firm bullish theme following this week's break of the Aug 11 high (Y110.80). Yesterday's rally confirmed a clean break of the Jul 2 high and bull trigger (Y111.66). This marks a resumption of the broader bull cycle that started Jan 6 and opens the way to the Feb 20 '20 high (Y112.23). Above there bulls would look to the Apr 24 '20 high (Y112.40), followed by the 2.0% 10-DMA envelope (Y112.57). Initial firm support is seen at the 50-day EMA (Y110.07).
• The notable FX option expires surrounding today's 10AM NY cut are a fair distance away, which will mean that markets look to the aforementioned triggers and month-end related flows for cues.