USD/JPY continued its correction into the European session, with early interbank names reacting to fears that the BOJ may be monitoring carry trades. BOJ officials were quick to deny the reports but USD/JPY triggered stops below 118.40 to record a 118.31 low. The pair was unable to sustain the move below the key 118.35 trend line due to sizeable demand.
Proprietary based accounts and leverage funds used the recent pullback as an opportunity to establish fresh longs. Real money demand was also sizeable and the pair was able to make a modest rally up to 118.75. Exporters and CTAs capped the pair into 118.80 ahead of the North American open. EUR/JPY experienced sideways movement after a 148.51 low. Options support underpinned and real money activity helped to take the pair back into 148.80 in the European morning.
The pair was unable to progress beyond 148.95 due to standing offers from Japanese accounts across the 149.00 handle. The market is expected to trade on a nervous footing, with both pairs biased to the downside in spite of the consolidation.USD/JPY and EUR/JPY key levels are 118.35 and 148.50 in the near-term.
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