The Dollar-Yen pair ended above the 100-DMA on Friday for the first since July 25. The pair clocked a high of 111.33 before trimming gains to close the week at 110.84 levels. The retreat from the high of 111.33 was the result of a weaker-than-expected US retail sales.

JPY/USD Options: Open positions in the Put options spike

JPY/USD Put Summary 
Total ITM OTM
OI Chg OI Chg OI Chg
26,726 548 10,221
 
84 16,505
 
464

 

JPY/USD Call Summary
Total ITM OTM
OI Chg OI Chg OI Chg
22,208 (132) 2,334
 
50 19,874
 
(182)

 

  • The CME data for JPY/USD Oct expiry options shows the open positions in the Put options [bearish bets] increased by 548 contracts on Friday. The Out-Of-The-Money [OTM] Puts added 464 contracts.
  • Meanwhile, the open positions in the Call options fell by 132 contracts.
  • The options activity clearly points to a bearish bias, i.e. the Dollar-Yen pair is seen extending last week's rally.

The flatter Treasury yield curve is not necessarily USD negative

The difference between the 30-year yield and the 5-year yield narrowed to 96 basis points on Friday, the tightest since July 7, from 103 basis points a week earlier.

The flattening of the yield curve is not necessarily negative for the USD as it was the result of traders pricing-out extreme dovishness at the short-end of the curve, i.e. markets have started pricing-in a possibility of another Fed rate hike in December following the last week's better-than-expected inflation data.

Markets may continue to unwind dovish positioning ahead of the Wednesday's Fed decision, thus USD could remain bid.

Technicals - Eyes 115.00

Monthly chart

  • Repeated bearish exhaustion around 108.00 followed by a sharp rebound to 111.30 levels indicates the pull back from the high of 118.66 [Dec high] has ended. The price action adds credence to the argument that the uptick in the Chinese PPI could end up reigniting inflation expectations in the US.
  • The spot looks set to test 115.00 - 115.32 [symmetrical triangle resistance].
  • On the downside, only a weekly close below 106.00 [monthly 200-MA + symmetrical triangle/rising trend line support] would revive the bearish view.

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