USD/JPY hit highs of 118.60 on the back of stop-loss buying on the break of 118.50 but has reversed sharply, dropping under 118.30 as USD bearishness reasserts itself. Traders are still looking to sell rallies on USD/JPY towards 118.60/70 and note that only the carry trade stops provided the support for the USD/JPY this morning.
However, small stops remain above 118.70/80 on USD/JPY that will remain vulnerable in a short-squeeze. The bearish USD sentiment has been reflected in AUD and NZD buying from model funds today that helped fuel the JPY cross rebound.
Traders also say that the fact that US stock losses have been muted compared to the Asian sell-off has also encouraged carry trade buybacks. Bids on dips remain much lower on USD/JPY around 117.50/60 with option defense noted ahead of this level.
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