JPY losses were limited in a quiet European morning. The start of the session saw a quick USD/JPY run higher in the wake of good interest from leverage funds and technical accounts. The 122.00 barriers gave way and the pair extended to 122.19. Gains were short lived amid good selling interest from Tokyo based accounts and Chinese names.
This was the main movement in an otherwise quiet session. Pullbacks into the 121.80 area ran into buying from a UK clearer and a US name, yet the topside failed to dent 122.00 amid ongoing selling pressure. A large part of the interest is reportedly options activity relating to large 122.00 vanilla strikes due to expire throughout the week. Elsewhere, EUR/JPY was underpinned amid proprietary name bids and investment trust demand. The topside was hampered by real money and lifer selling.
Hedging has picked up and expected to continue as accounts reduce their exposure ahead of the G7 meeting in early February. The fundamental and technical picture supports near-term JPY losses but we expect quite a lot of JPY demand as hedging increases via the crosses and option accounts restrict USD/JPY movement.
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