USD/JPY retreats from highs, back below 111.00
|The greenback has started the week on the back footing, now dragging USD/JPY to the 110.80 area.
USD/JPY eyes on Fedspeak
After climbing to fresh 6-month highs near 111.20 during overnight trade, the pair’s upside lost some vigour and has sparked a correction to the mid-110.00s, albeit finding some buying interest in that region afterwards.
The upward momentum in USD remains propped up by expectations of further monetary tightening by the Federal Reserve, with the probability of a rate hike in December above 95% in view of CME Group’s FedWatch tool.
Adding to the dollar’s bullish outlook, the prospects of a looser fiscal policy by the Trump’s administration could prompt the Fed to accelerate the pace of its hikes amidst expectations of higher inflation.
In the meantime, the yield spread differential between US Treasuries and JGBs stays supportive of the buck, especially after the BoJ introduced its ‘yield control’ back in September.
Reflecting the recent downside bias in JPY, net longs have retreated to the lowest level since late May while Open Interest have climbed to the highest level since mid-June during the week ended on November 15 and as seen in the latest CFTC report.
USD/JPY levels to consider
As of writing the pair is losing 0.07% at 110.82 and a break below 110.55 (low Nov.21) would aim for 107.74 (low Nov.15) and then 106.31 (200-day sma). On the other hand, the next resistance is located at 111.19 (high Nov.21) ahead of 111.45 (high May 30) and finally 111.92 (high Apr.25).
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