Search ForexCrunch
  • The Yen is solidly bid in Asia as the 10-year treasury yield fell to a 6-week low.
  • USD/JPY fell to 108.92 – the lowest level since May 8.
  • JPY calls are in demand, the risk reversals show.

The bid tone around the Japanese Yen strengthened in Asia, pushing the USD/JPY pair down to 108.92 – the lowest level since May 8, possibly due to a drop in the US treasury yields.

As of writing, the 10-year treasury yield is trading at 2.89 percent – down more than four basis points, having clocked a 6-week low of 2.88 percent a few minutes ago. Meanwhile, the USD/JPY pair is seen at 109.05.

The spot may drop further if the Italian uncertainty boosts the Italian-German yield spread, which clocked a 5.5-year high of 232 basis points yesterday.

The investors are likely expecting a deeper drop in the USD/JPY as the implied volatility premium for JPY calls (or demand for JPY calls), as represented by the  one month 25 delta risk reversals,  rose sharply in the last week.

USD/JPY Technical Levels

The immediate support is seen at 108.82 (38.2% Fib R of Mar-May rally), 108.65 (May 4 low) and 108.20 (100-day MA). Meanwhile, resistance is lined up at 109.42 (5-day MA), 109.83 (previous day’s high) and 110.00 (psychological hurdle).