JPY was range bound in the European morning. yet bias is still skewed to softer levels. USD/JPY opened at 120.25 and made a run higher on fresh speculative selling of JPY. The pair struggled to move beyond 120.45/50 amid selling interest from CTAs/model funds and reports of option related activity. The pair drifted back into 120.20/25 but found good support from importers and real money names.
The JPY crosses also traded on a supportive footing, with EUR/JPY holding above 156.00. EUR/JPY's upside momentum was lacking and the pair never traded beyond the 156.20 area, with consolidation the theme. GBP/JPY benefited from early GBP demand, with focus on UK CPI. Profit taking persisted after CPI came out at 3% Y/Y. The general bid tone kept the pair underpinned around the mid 236's.
Sentiment towards the JPY remains bearish even though most are now anticipating a BOJ hike rates on Friday. A move higher in key Japanese rates will only provide modest JPY gains, with flight to yield still expected to encourage large outflows from JPY. Focus remains on the USD/JPY barriers at 121.00, with a number of positions expiring tomorrow.
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