USD/JPY Forecast: Is 115.00 on the cards?

Omkar Godbole FXStreet Contributor

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.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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