USD/JPY nears the first key area
We are watching USD/JPY climbing towards the first of the key levels on the upside, namely around the 108.00 area, which is widely expected to provide some stern resistance despite the one-way traffic we have seen this week. The JPY has been under pressure through the week amid a more comfortable risk tone, which has also seen bonds tumble and yields rising across the board. As the BoJ will continue to maintain its policy of yield control, this feeds into currency weakness which has pushed up cross JPY rates also.
As such, this is not a USD move for the most part, though we have seen the 10yr Note in Treasuries recover to a little over 1.70%, so there is an element of USD input to the move. However, around 108.00, we expect the key spot rate to stall initially at the very least, with the pair also looking a touch overbought on short term metrics.
While the US-China trade talks have seen little material progress - and White House advisers have openly suggested that this will take some time - the calmer mood and the resumption of talks has eased sentiment across all risk assets, with Gold prices also lower to reflect the focus on risk near term.
Dip buyers will look to the mid 107.00's initially, but for today, we expect to see tight ranges play out as the upside is still being tested for now.