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Yen Remains Under Pressure As U.S. Tsy Yields Climb

JPY

Spot USD/JPY added just 10 pips on Tuesday after recouping its modest losses registered in early Tokyo hours. The rate held a relatively tight ~50 pip range through the day, with participants were on the lookout for fresh catalysts ahead of the release of the much awaited U.S. CPI report on Wednesday.

  • Even as the spot rate oscillated within a tight range, USD/JPY risk reversals kept rising across the curve, led by longer-dated skews, hitting multi-week highs. One-year tenor moved above parity for the first time since mid-June, signalling a dissipation of bullish yen sentiment among options traders.
  • Worth noting that the latest CFTC Positioning Report for the week through Aug 2 showed that leveraged funds trimmed their net JPY short positions by 3,206 contracts to the least since Mar 2021. However, the expectation-busting U.S. jobs report released last Friday revived hawkish Fed bets, generating fresh headwinds for the yen.
  • The Japanese currency failed to benefit from post-Asia weakness in global equity markets on Tuesday, ignoring an uptick in the VIX index. A move higher in U.S. Tsy yields took precedence, lending support to USD/JPY.
  • When this is being typed, USD/JPY trades at Y135.26 after adding 20 pips as U.S. Tsys softened a tad in early Tokyo trade. From a technical perspective, a move through the 61.8% retracement of the Jul 14 - Aug 2 sell-off at Y135.96 would shift focus to Jul 27 high of Y137.46. Conversely, key initial layers of support are provided by the 100-DMA/Aug 2 low at Y131.16/130.41.
  • In the absence of notable local data releases during the remainder of the day, Japan's Cabinet/LDP executive line-up reshuffle will likely steal the limelight.

Fig. 1: USD/JPY vs. USD/JPY 1-Year Risk Reversal

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Spot USD/JPY added just 10 pips on Tuesday after recouping its modest losses registered in early Tokyo hours. The rate held a relatively tight ~50 pip range through the day, with participants were on the lookout for fresh catalysts ahead of the release of the much awaited U.S. CPI report on Wednesday.

  • Even as the spot rate oscillated within a tight range, USD/JPY risk reversals kept rising across the curve, led by longer-dated skews, hitting multi-week highs. One-year tenor moved above parity for the first time since mid-June, signalling a dissipation of bullish yen sentiment among options traders.
  • Worth noting that the latest CFTC Positioning Report for the week through Aug 2 showed that leveraged funds trimmed their net JPY short positions by 3,206 contracts to the least since Mar 2021. However, the expectation-busting U.S. jobs report released last Friday revived hawkish Fed bets, generating fresh headwinds for the yen.
  • The Japanese currency failed to benefit from post-Asia weakness in global equity markets on Tuesday, ignoring an uptick in the VIX index. A move higher in U.S. Tsy yields took precedence, lending support to USD/JPY.
  • When this is being typed, USD/JPY trades at Y135.26 after adding 20 pips as U.S. Tsys softened a tad in early Tokyo trade. From a technical perspective, a move through the 61.8% retracement of the Jul 14 - Aug 2 sell-off at Y135.96 would shift focus to Jul 27 high of Y137.46. Conversely, key initial layers of support are provided by the 100-DMA/Aug 2 low at Y131.16/130.41.
  • In the absence of notable local data releases during the remainder of the day, Japan's Cabinet/LDP executive line-up reshuffle will likely steal the limelight.

Fig. 1: USD/JPY vs. USD/JPY 1-Year Risk Reversal

Keep reading...Show less