Yield plays influenced the market in quiet trade. The US FOMC statement weighed on the dollar as players adjusted expectations for the medium-term outlook on rates. European players were early sellers of USD/JPY after the pair edged away from 119.00 overnight.
The pair drifted lower as EUR/USD made up ground in response to hawkish comments from ECB Chief Trichet. The pair was supported into the 118.60 area from importer bids, trust banks and reports of small Eastern European buying. Proprietary accounts and leverage names used the pullback to establish longs while the 118.55 support held.
EUR/JPY retained a bid tone, buoyed by Japanese retail investor demand and general flight to yield by hedge funds and macro accounts. AUD/JPY, GBP/JPY and EUR/JPY all traded on a firm footing. EUR/JPY cleared stops above 150.30 and extended to 150.48. Option accounts and real money names drove the pair lower.
USD/JPY is expected to retain a narrow range amid a heavy dollar tone and good size option bids ahead of 118.50 strikes. EUR/JPY is likely to be skewed towards 150.50, where large size exotic positions remain.
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