USD/JPY: in a minor recovery post Draghi's speech, yet capped and back under pressure below 109.40
Currently, USD/JPY is trading at 109.35, down -0.17% on the day, having posted a daily high at 109.85 and low at 109.11.
USD/JPY has entered into a minor recovery of the post-Yellen sell-off on the back of Draghi's speech. US stocks are also in a recovery, finishing on a strong note on the week yet the DXY has dropped to a fresh low on the session at 92.42. US yields in the ten-years rose a couple of basis points, albeit still under water on the session by just below 1.00% at 2.1729%.
Meanwhile, JPY saw no material response to the release of as-expected CPI data overnight for July and near-term risk remains centered on the broader tone. "We highlight JPY’s risk profile and vulnerability to weakness in periods of risk appetite and knee-jerk haven driven gains in periods of risk aversion. Risk reversals are suggestive of a slight moderation in demand for protection against near-term strength," explained analysts at Scotiabank.
While the recovery is only minor on the day, the downside remains compelling while USD/JPY is unable to gain traction past 109.40. 108.81/13 support zone, is in view which is made up of the April and June lows. ". We still expect this area to hold and for the cross to level out ahead of the April low at 108.13. While it holds another attempt at breaking above the 111.05 current August high could still be seen. Failure at the 108.13 April low would put the July 2016 high at 107.49 on the map. Where are we wrong? Below 108.13 would target the 107.49 July 2016 high, then 106.50, the 61.8% retracement of the move 2016-2017," explained analysts at Commerzbank.
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