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USD/JPY Retraces Gains Post-Asia, Yen Remains Weak


Spot USD/JPY showed at a fresh monthly high on Monday but gave back those gains in European hours, before recovering to neutral levels in the NY session.

  • A slide in U.S. Tsy yields dragged USD/JPY away from intraday highs by promoting a degree of narrowing in U.S./Japan yield gap. The spread between yields on 10-year gov't debt shrank ~8bp on Monday.
  • Musings on FOMC policy action continued to affect price action from the background, as participants assessed last Friday's blowout NFP report and prepared for this Wednesday's U.S. CPI figures.
  • Equity strength observed in London hours petered out, with U.S. stock benchmarks paring initial gains. The VIX index was marginally higher come the end of play, but USD and JPY failed to benefit from renewed caution.
  • USD/JPY 1-month risk reversal extended its recent gains to best levels since Jun 13, when it dived into negative territory.
  • Spot USD/JPY trades at Y135.00 at typing, a touch higher on the day. Gains past Y135.96, the 61.8% retracement of the Jul 14 - Aug 2 downleg, would expose Jul 27 high of Y137.46. On the flip side, bears look for a sell-off towards the 100-DMA/Aug 2 low at Y131.01/130.41.
  • The domestic data docket is fairly light during the remainder of the week, but a Cabinet reshuffle expected tomorrow will provide interest.

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