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USD/JPY Just Off Fresh Cycle Highs As Lower US Yields Curbs Dollar Advance

JPY
SD/JPY made a new cycle high in Asia Pac trade on Tuesday of 161.74, but we sit marginally lower near 161.40/45 in early Wednesday dealings. The pair was close to unchanged for Tuesday's session, as broader USD sentiment softened a touch amid a US yield pull back. The BBDXY USD index ended near 1269, off earlier highs close to 1274.
  • Mildly dovish comments from Fed Chair Powell at the ECB forum in Sintra, Portugal contributed to the US yield pull back. Recent inflation data suggest that "we are getting back on a disinflationary path", Powell stated, he reiterated that more is needed to be more confident that inflation is headed sustainably to 2% before loosening policy.
  • Cash Tsy yields were 1.4-3.2bps lower across the benchmarks, with the 10yr back to 4.43%. This helped yen at the margins, although USD/JPY weakness didn't extend beyond 161.25/30.
  • Technically for USD/JPY little has changed, with the trend remaining bullish. Sights are on 162.21, a Fibonacci projection. Initial key support to watch is unchanged at the 20-day EMA, at 158.82.
  • On the data front today we have the final PMI reads for the June Jibun services and composite PMI prints. We also have BoJ Rinban purchases, although no change is expected as we await more details on the BoJ plans. The central bank is meeting with key stakeholders in the bond market space early next week.
  • On the option expiry front, note the following for NY cut later today: Y158.50($2.6bln), Y160.20-25($1.1bln), Y160.85-00($1.1bln), Y161.30-40($783mln), Y162.00($660mln).
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