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USD/JPY Snaps Winning Streak

JPY

Tuesday was a bearish outside day for USD/JPY, which retreated amid broader greenback underperformance.

  • Pre-Jackson Hole musings provided the crucial context for Tuesday's developments, with participants trying to predict the most likely tone of upcoming Fedspeak.
  • The greenback lagged all its G10 peers, as domestic data disappointed. The flash reading of S&P Global Services PMI missed expectations by a wide margin, while new home sales fell more than expected.
  • U.S. Tsy yields took a nosedive in response to the data but chewed into those losses in NY hours. The simultaneous recovery in USD/JPY was more cautious.
  • All in all, U.S./Japan 10-year yield spread widened ~3bp on Tuesday, while 2-year gap was little changed.
  • Equity sentiment was fragile on Tuesday, while the VIX index edged higher.
  • Spot USD/JPY last changes hands at Y136.68, down 10 pips on the day. Bears look for losses through the 100-DMA (Y132.39) before setting their sights on Aug 2 low/23.6% retracement of the 2020 - 2022 rally at Y130.41/37. Bulls keep an eye on Y139.39, a cyclical high printed on Jul 14.
  • Looking ahead, BoJ's Nakamura will speak on Thursday, before Friday's release of Tokyo CPI figures.

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