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  • NY bulls, seeing through the BoJ noise,  pick up the volatility of Tokyo and figure the central bank theme gives the dollar the advantage.  
  • Spot resides at the daily Kijun line and the uptrend line off the June 26 and July 9 lows that all converge near 111.40.

USD/JPY has been the weakest pair since last week when the ‘Trump factor’ kicked in and knocked the dollar down a few pegs on the currency board. Then on late Friday, speculation of tighter BoJ sent the JPY higher and the market went berserk in Tokyo overnight when JGBs plunged on the back of the speculation, with the yield on the benchmark 10s hitting 0.093% early doors and the strongest levels since late January-early February – this, in turn, prompted the BOJ to announce a special operation to buy unlimited JGBs at 0.110% – an effective cap and taper – so a double whammy for USD/JPY.  

“Friday’s local media reports hinted to a possible upward adjustment to the BoJ’s 0% target for the 10-year yield. The selloff in JGBs lifted the 10Y yield toward the psychologically important 10bpt level and prompted the BoJ to step in with an offer to buy an unlimited amount of 10 year bonds for the first time since February,” analysts at Scotiabank also explained.  If the BOJ does tweak its ultra-easy monetary policy as early as next week when they meet  July 30 (Mon), 31 (Tues) we could see a further uproar in Asia again.  

Dollar on the backfoot due to currency/trade war angst, but…

Meanwhile, the dollar has been on the backfoot due to speculation that the Trump administration is about to go head to head in a full-blown currency war and the markets have started to move out of the dollar expecting the US to ensure a weaker dollar policy. However, the dollar has started to stabilise on Monday in NY as the central bank divergence remains the dominant theme when cutting back the noise in the media and traders get back to basics after digesting the volatility in Tokyo overnight.  

USD/JPY levels

The daily Kijun line and the uptrend line off the June 26 and July 9 lows that all converge near 111.40 are where traders are basing the pair as a foundation and pivot pint where sot currently resides.   However, to the downside, the 50-D SMA, (110.49)  ahead of the 200-D SMA at 110.10 that guard the Tenkan prop located a cent lower at 109.19, (below the 109.36 key June support). Further out, a key target comes as the 108.10 and May 29 low.  On the flip side, a break through the 112 handle and onto the 200-week moving average finds 113.22, which is just above is where the 61.8% of the 2016-18 drop at 113.27-28 is located. On the wide,  the 2018 high comes ahead of the 114.73 November 2017 high is a longer-term target.