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  • USD/JPY fails to keep gains above the 200-day SMA. 
  • The pair is still up nearly 300 pips from low seen a month ago. 
  • Reuters recommends buying a call option to hedge against further upside.

USD/JPY ran into a widely-tracked technical resistance on Friday. 

The pair tested the 200-day Simple Moving Average (SM) for the first time since June 2020. The SMA located at 105.59 was breached with a move to 105.64, however, the breakout was short-lived. At press time, the pair is trading largely unchanged on the day near 105.50. 

However, it is still up 70 pips on a week-to-date basis and has gained nearly 300 pips since bottoming out at 102.59 last month. 

The sentiment for the battered US dollar has improved off late with progress in coronavirus vaccinations, the US President Joe Biden’s unveiling of a $1.9 trillion fiscal stimulus, and upbeat economic data. 

The yield curve has steepened to the highest level since 2016 with longer duration yields, tracking inflation expectations higher and boosting demand for the greenback. 

According to Reuters, the upside has been compounded by the flow of funds from the anti-risk yen. “Traders who want to insure against a USD/JPY surge could buy a two-week 105.30 USD call option at the cost of 38 pips, priced with the spot at 105.25,” Martin Miller, Market Analyst at Reuters, noted Thursday. A call option gives the purchaser the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. 

Technical levels