JPY continued to grind lower in the European session. USD/JPY pressed through 121.25/30 offers and moved towards the 121.40 area. Price action was choppy amid option expiries at 121.25 in modest size and an overhang of offers from exporters. Japanese retail investor demand was noted on dips, which helped to underpin the pair throughout the session.
EUR/JPY benefited from the investor activity, keeping the topside in focus despite the pair drifting off the 159.00 handle in early European trade. A corrective EUR/USD tone contributed to EUR/JPY's consolidation but the pair remained within close proximity to the fresh 159.12 high recorded in the Asian session. Interest for carry trades is expected to continue but there has been a slowdown in gains.
Fed's Yellen and other European officials raised concerns over the carry trade, while Japan MOF's Fujii said FX should reflect fundamentals. These comments did little to change direction, yet do highlight the background risk. Currently, speculative accounts appear willing to take on more risk, indicated by lower vols and an increase in the high yielders.
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